Another anatomy lesson!

One more lesson in market timing occurred in NANX. The stock ran up for several sessions. Eventually a distribution day beckons. In this case, the dive happened much later in the day, which is easier to short than something like AEN, because such very early pounces can bounce or go red to green in embarrassing fashion.

The set-up:

A stair-step like bundle of daily green candles seemed poised for continuation on Thursday, April 1.

It looked like short sellers would have to wait until Monday.

NANX established a mid-morning  intra-day high of 2.18 at 11:10 EST and then faded.

NANX bottomed out at 2.00, which became firm intra-session support. If taken out, shorts had a play. In a stock like this, such a support level being broken is a red flag to jump in.

As the day progressed, the stock attempted to retrace the highs meekly, stalling out at 2.13 in the last 1.5 hours of trading. This is an important concept to remember in general for over-extended stocks, to look for an early high and a failed attempt by longs to retrace and take out  that high on volume to the upside in a session.

The entry cues and possible risks:

With 20 minutes left in the trading session, NANX dove through the critical 2.00 support level on the day. This was your signal to short the equity, hoping for an entry as close to 1.99 as possible. It closed at 1.85 to finish red. A mental or physical stop as insurance just above 2.00 would have addressed a headfake outcome.

What is nice about a play like this as compared to something like AEN, is the risk of spiking only minutes after entry is typically less, as the play is shorted well into the afternoon and intra-day support has been established. The day landscape is already well-defined. The drawback is that if it happens really late, as here, one has to hold overnight to get enough of a drop to exit, unless it really tanks hard and fast into the close. 

The ideal same day exit:

This was impossible as the stock fell too late and dropped too little for profits to be booked. One should still be in this, hoping to cover into some real morning panic or more gradual downside fading action. In my ideal world I exit, hopefully near EOD, on the same day, avoiding suprise news releases, annoying gap up and runs, or morning spikes that may interfere with the best laid plans of mice and men. Still, this is another bread and butter type of play that will not win prizes for originality or excitement, but it can pay the monthly light bill.


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