I initially saw LAMR come across my "new high of the day filter" in the morning. It was moving higher steadily so I kept it on my watch list, and then paid close attention after it consolidated at noon.
LAMR 9:30-12:30
A few reasons why this setup interested me:
1. There was no meaningful news affecting the stock, yet it was up 7%. I scanned the news and saw UBS had some comments out on it and actually lowered its numbers. This is bullish - the fact its up on seemingly bearish news.
2. This steady move up is neutral to the market action. Here's what the SPY did today:
SPY 9:30-4:00
3. The next question I asked myself is, does LAMR have the potential to move more than it already has? I quickly checked a daily chart and saw that it has made major moves (ie 10-20%) in the past. In other words, LAMR has the ability to get juicy.
4. But can it continue today? I checked the short interest - 7% of the float and 6 days to cover - not an ideal candidate for a short squeeze (over 10 days to cover) but still way above average. Also, something I noticed about the daily chart - 29 is resistance and above it is a gap higher:
LAMR daily chart May 17-July 17
(note: this screen shot was taken after the close, hence the move above 29)
5. The best thing I liked about the set up was the quality of the candles. Notice on the first 5 minute chart I posted above, several green candles have no wicks - they open at the low and close at the high. This signals low uncertainty and the participation of algos, and more importantly, predictive of similar moves in the near future. Here is the 1 minute candle. You can see how consistent the small green candles are, very nonhuman, especially from 11:45 to 12:
LAMR 9:30-12:45
Also notice how the stock consistently stays above the EMAs. The yellow is the 6 day EMA and the blue is the 15. If you go back to the original 5 min chart, the candles consistently stay above the 6 day EMA. For many traders, this means the long trade is still in tact.
6. Finally, this set up is a classic cup and handle. This formation consists of a strong move higher, followed by a shallow consolidation, and then a second move higher which breaks the previous high.
Even though this setup has many characteristics I look for, an important thing to realize is I did not blindly enter LAMR long at this point. One rule I (try) to trade by is my entries are reactive and not predictive. By this I mean I try to wait for the stock to tell me what it wants to do. At this point in the day, the stock is simply consolidating off its highs - it is not telling me it wants to go higher. It could easily break down and go below the EMAs, stopping people out and signaling the long trade is over. What I'm looking for is a move towards the highs, signalling the potential to break higher and create a cup and handle.
Here is my entry at 28.96:
LAMR 9:30-1:19
What I like about this is the last two 1 min candles are solid (closed at the highs). Even though it may seem I'm buying the high here, I like the quality of the candles because I believe they will lead to the greatest chance of breaking the highs. Also, this entry has a clear exit or stop, which I put below 28.60. I am risking 37 cents in this trade, so my goal is to make at least 3 times this, or 1.11. This is an important rule I (try) to follow: risk to reward ratio always has to be at least 1 to 3. This way, less than 50 percent of trades can be winners and you can still be profitable.
Another reason I like this entry is it's at the high of the 1 min candle at 1:19 which means the 5 min candle will close at the high, creating a solid candle (a bullish signal). Here it is:
LAMR 9:30-1:20
Now that I've entered the trade, I watched the price action and will look to sell once the trade is broken: either at my initial stop of 28.59 or if it goes higher and then breaks EMAs on the way down. I am also looking for a spike higher on high volume to exit the trade. This would be inconsistent with the previous price action and would signal a capitulation of the shorts covering.
There was 20k offered out loud at 29. Once it broke through, I sat back and enjoyed the ride up. My exit was at 30.61 after a spike higher on heavy volume (CNBC had mentioned it, causing the shorts to capitulate). Here are the 1 min and 5 min charts:
LAMR 9:30-3:00
Notice how consistent the green candles are on the way up: small and staying above the 6 EMA (yellow). As it turns out, my exit was a good one because it got rocked into the close - probably longs getting stopped out as well as fresh shorts after CNBC mentioned it.
LAMR 9:30-4:00
Finally, the best trades tend to defy the imagination, and this one certainly did. It was already up 7% at my entry on pretty much no news (the UBS news was seemingly bearish!). Many traders, including my old contrarian self a year ago, would automatically stay away from this on the long side and maybe even consider shorting it. When looking at a stock that's at the high or low of the day, there is a cognitive bias that makes us think the edge of the screen (literally the side of the computer screen) will somehow "cage" the stock and prevent it from going higher or lower. Looking at the first chart I posted, many would certainly agree the stock would be unlikely to move higher, yet alone another 6 percent higher. It's only when we look at the final chart, it makes sense that the high of the day at 1:19 was actually the ideal long entry.
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