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Slam Plays, page #2

Potential Entry and Exit Points for the Slam Recovery Play


This is the rarest bird of all the Slam plays. It's a commonly held theory that stocks moving down a lot in one day usually do so on an overreaction. However, stocks making a big one-day move down often do so based on a consensus belief that the stock has lost value. And it is more common for the downward pressure to continue, than for it to reverse.

Potential Entry Points
Screen for stocks crossing down through their 10-Day Moving Average (MA) line, a one-day price change of at least -8%, average volume of at least 100,000, and stocks above their 50-Day MA line. Let risk tolerance be your guide as to whether you take a long position immediately, or wait a day or two to confirm upward movement. You may want to wait until the stock moves back up through its 10-Day MA line.

Potential Exit Points
As always, "when you've made enough, get out" is simple rule to follow. To lock in profit while letting a stock run, consider using a trailing stop loss order a safe distance below the stock's average daily trading range that is consistent with your risk tolerance and your objectives.


Charting Example for the Slam Recovery Play


Earthlink (ELNK) recovered nicely from an 11.5% Slam during the period thanks to a strong move in its sector. Three days after the Slam, ELNK punches back up through its 10-Day Moving Average line. Seven days after the Slam, ELNK had not only recovered, but improved by 48%. A rare but impressive recovery.

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Entry and Exit Points for Short Term Slam Play


This is the rarest bird of all the Slam plays. It's true that stocks moving down a lot in one day usually do so on an overreaction. However, stocks making a big one-day move down often do so based on a consensus belief that the stock has lost value. And it is more common for the downward pressure to continue, than for it to reverse.

Potential Entry Points
You'll have to find these plays searching for day's "Winners/Losers" to see which stocks on each of the exchanges are good candidates for the Short Term Slam play. Stocks having lost 15% or more from the previous day's close are what we're looking for - typically the bigger the drop the better for this play. But, you still have to be very selective. The best candidates for this play open with a big price drop, run down a bit lower, start to build a base at the low, and climb slowly for the rest of the day.

Potential Exit Points
The critical point in exiting any short term play is to exit before the end of the day - even if you're in a losing position. This is the most sacred rule of short term trading. It is difficult to predict the next day's action in a Slam play, and it's even more difficult to predict if the Slam has turned out to be a positive Short Term Slam play. Many times the stock heads lower again, and you could sustain huge losses by holding over night. Set a specific gain you're looking for (consider 1/2 point or 5% profit) and get out if and when it's reached. Alternatively, you can watch the momentum and jump out when it dies.


Charting Example for the Short Term Slam Play


Two things made Beyond.com (BYND) a good candidate for a Short Term Slam play, in the period shown. It opened just below its 10-Day Moving Average giving it a support level to leverage against. It also gapped down a huge 42% from the previous day's close making it an even better candidate for the Short Term Slam play. After running down just point from its open, BYND crept up the rest of the day, closing up $4 from its open.


Summary


  • Slams are high risk and high maintenance plays
  • Continuation and Pullback with Support Slams are more conservative plays but still contain risk
  • Find out what caused the Slam and carefully assess the damage
  • Use the 10-Day Moving Average as your divining rod
  • Slams that blow through their 10-Day MA aren't likely coming back any time soon

Slams - Page 1     Slams - Page 2     PVTM

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