Frequently Asked Questions
Q: I was also long the JDSU but sold when it undercut the low of the pocket pivot day at $25.05 I've always sold recent pivot buys anytime they reversed and undercut the low of day same day or next couple of days. In fact, while I haven't acted on it, almost every time this has occurred, memory would suggest it become an excellent short sale opportunity. I was wondering if Dr K ever looked at this phenomenon.
JDSU pivot day, 3/4/11 undercut next trading day 3/7
CCME pivot 1/27/11 undercut two trading days later on 1/31
DGIT pivot 8/4/10 failure same day.
In all cases I was long and exited on the undercut of pivot low. In all cases I didn't subsequently short them but in hindsight, I should have.
A: In better market environments, the pocket pivot can undercut and still work.
In the current environment [March 10, 2011], the market has been going nowhere in 2011, behaving in a sideways, choppy, sloppy manner, the most challenging kind of environment for investors. Stocks that undercut the low of their pocket pivot day in such an environment are more likely to work on the short side. The challenge is that no one knows when such periods will begin, how long they will last, and when they will end.
DGIT short worked because that was a massive reversal the same day, so on a strict price/volume basis, it was a great short set up.
CCME short worked because it's a higher risk Chinese stock with a low PE, even at the time of the breakout. Low PE Chinese stocks are higher risk plays. They can be bought, but due to the higher risk, smaller positions might be prudent.