Regardless of the reason for a big price move, technical traders stay focused on finding solid entry points where risk can be kept smaller than the potential reward. Following news events means not entering positions on the hype, but rather waiting for a better entry point once the initial euphoria or panic has worn off. These four saw strong news related moves recently, but entering now isn't the ideal play. With a bit of patience, here's where to enter on a pullback.
SolarCity (Nasdaq:SCTY) jumped 17.58% on June 17 on the news that the company would purchase solar-panel manufacturer Silevo. The long-term trend of SolarCity is up but has been in a deep retracement since the February high at $88.35. The jump on June 17 indicates the next wave of the uptrend could be underway. With the ideal place for a stop loss order below the recent low at $45.79, buying at the current price of $64.53 results in a larger than necessary risk. A pullback to the $58 to $52 dollar region results in reduced risk entry point. This is s big area; once the price enters the region, wait for the selling to stop and a strong up day to mark the resurgence in the buying. Once the entry is taken, the stop can be moved up to just below the most recent low--making the reward to risk ratio much more favorable. The price target is $81, although if the long-term uptrend continues, eventually the price will need to get above $88.35.
Chicago Bridge & Iron (NYSE:CBI) sold off 7.23% as it was found out that company profitability had been overstated. Big drops in the stock were seen over the several prior trading sessions as well. While the decline is aggressive and it's tempting to jump on the short, even with this sort of news, waiting for a better short entry is the prudent play... even if that ideal entry point doesn't materialize. The ideal entry point occurs if the price pulls back into the $78 to $82 region ($76 to $78 is also acceptable, but not ideal). If the price does move into that area, any day that shows strong selling is a sign to jump on the short. Stop is initially above $84 but can be reduced to just above the most recent high once in the trade. There is little support for the stock until $62, followed by $53 which act as targets.
Charles Schwab (NYSE:SCHW) jumped 5.49% on June 17 following a Senate hearing on high frequency trading. Prior to the jump it appeared like a head and shoulders topping pattern could be forming in the stock, That may still be case, although a break above the short-term downward sloping trending indicates more upside may be on the horizon. The buy zone is between $26.50 and $26 with an initial stop below $24.68. The stop can be moved up below a new recent low once it forms. Resistance is between $28.20 and $29.13 which can be used as an initial target area for a portion of the position, with the remainder of the position being held for a rally beyond $29.13 should the long-term uptrend continue.
SunPower (Nasdaq:SPWR) was in a range since November 2013; that ended on June 12 and followed through with a 4.3% rally on June 13. SunPower was bolstered by offering a loan facility for residential solar programs in conjunction with Admirals Bank. $37.14 to $35 is a strong former resistance area which should now act as support on pullbacks and provide a long entry area. A stop can go just below the recent low at $33.12 and moved up below a new low once it forms. Following a pullback the target is above the recent high at $40.99 as the long-term uptrend remains strong.
The Bottom Line
One of the goals of a technical trader is to only take trades on their own terms. If you can't get the entry price you want, avoid the trade. Trading after a news event requires patience in waiting for a better entry point; if the price continues to run, that entry point may not come. While this can be frustrating, missing a trade based on a solid strategy is better than getting a bunch of trades which have poor entry points and are likely to result in a losing trade. Following a big move, wait for the pullback so your entry point is closer to your ideal stop loss level, minimizing risk.