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The Breakout in GS - The PlayBook Webinar Series

The PlayBook is a valuable Webinar event held every Thursday at SMB. Throughout the week traders submit their analyses of a particular trade. They discuss the Big Picture, any news pertaining to the particular stock at hand, and then offer a detailed explanation on why and how the trader behaved as he or she did. This week Mike discussed the Breakout Trade in GS. For more information on The PlayBook Webinar Series, please go to www.smbtraining.com/blog

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Earnings Accumulation After Gap Up -
 Breakout through Opening Range
            Resistance

           Jeff Muscatello
               1-16-13
                 GS
1.   SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB
     TRAINING offers a number of products and services, both electronical (over the internet through
     smbtraining.com) and in person. Through smbtraining.com, SMB TRAINING offers the “Virtual Trading Floor”,
     a community through which independent traders (subscribers), as well as T3 Trading Group, LLC traders,
     observe a virtual trading floor environment (as described below) for educational purposes. SMB TRAINING
     also offers web-based, interactive training courses on demand.
2.   T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX
     www.CBOE.com). All Trading conducted by SMB Training is done through T3 Trading Group, LLC.
3.   The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor
     should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully
     responsible for any investment decision you make, and such decisions will be based solely on your evaluation
     of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
4.   This material is being provided to you for educational purposes only. No information presented constitutes a
     recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or
     instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor
     should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully
     responsible for any investment decisions you make. Such decisions should be based solely on your evaluation
     of your financial circumstances. Such decisions should be based solely on your evaluation of your financial
     circumstances, investment objectives, risk tolerance and liquidity needs.
5.   SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
6.   No relevant positions
7.   Please note: Hypothetical computer simulated performance results are believed to be accurately presented.
     However, they are not guaranteed as to accuracy or completeness and are subject to change without any
     notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual
     performance record, simulated results do not represent actual trading. Since, also, the trades have not
     actually been executed; the results may have been under or over compensated for the impact, if any, of
     certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are
     also subject to the fact that they are designed with the benefit of hindsight. No representation is being made
     that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades
     carry risks.”
Breakout Trade
•   Breakouts can occur in a few ways:
    o New 52 week highs
    o New intraday high
    o Through intraday, 2nd day, or daily resistance levels
    o Range break (a lot of traders will use the opening range)
•   To get in I can play it a variety of ways:
     o Pay quickly when the level is broken and play for momentum
     o Get in a little before and add when the level breaks (play one to hold

•
        with same stop and other as a momentum trade)
    In a successful breakout trade I want to see the speed on the tape pick up,
    bids step up, volume increase, price move away in a hurry and never come

•
    back a.k.a. hold higher.
    Depending on where the protection is below the breakout price, if it does
    not work right away I might hit out and reassess, or give it a proper stop.
Big Picture
•   Big day for financial earnings stocks today with GS and JPM reporting along with a
    slew of other banks. C reports tomorrow.
•   XLF is at a critical level at 17.20 since the recession and is looking to break out fairly
    soon.
•   SPY's gapped down today but rallied all day and closed the day just above 147.00
    and basically flat for the day.
•   Industrial Production was slightly better than expected today where Housing Market
    Index was slightly lower than expected.
•   This stock and sector were in play today so much of how the market traded today
    was dictated by what this particular stock and sector did.
•   SPY's have not been terribly active lately but are holding their recent gains
•   AAPL also rebounded today and closed back above $500. Not in the sector but a
    big piece of the market
Picture
The Breakout in GS - The PlayBook Webinar Series

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The Breakout in GS - The PlayBook Webinar Series

  • 1. Earnings Accumulation After Gap Up - Breakout through Opening Range Resistance Jeff Muscatello 1-16-13 GS
  • 2. 1. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a number of products and services, both electronical (over the internet through smbtraining.com) and in person. Through smbtraining.com, SMB TRAINING offers the “Virtual Trading Floor”, a community through which independent traders (subscribers), as well as T3 Trading Group, LLC traders, observe a virtual trading floor environment (as described below) for educational purposes. SMB TRAINING also offers web-based, interactive training courses on demand. 2. T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX www.CBOE.com). All Trading conducted by SMB Training is done through T3 Trading Group, LLC. 3. The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. 4. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. 5. SMB Training and SMB Capital Management, LLC are separate but affiliated companies. 6. No relevant positions 7. Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.”
  • 3. Breakout Trade • Breakouts can occur in a few ways: o New 52 week highs o New intraday high o Through intraday, 2nd day, or daily resistance levels o Range break (a lot of traders will use the opening range) • To get in I can play it a variety of ways: o Pay quickly when the level is broken and play for momentum o Get in a little before and add when the level breaks (play one to hold • with same stop and other as a momentum trade) In a successful breakout trade I want to see the speed on the tape pick up, bids step up, volume increase, price move away in a hurry and never come • back a.k.a. hold higher. Depending on where the protection is below the breakout price, if it does not work right away I might hit out and reassess, or give it a proper stop.
  • 4. Big Picture • Big day for financial earnings stocks today with GS and JPM reporting along with a slew of other banks. C reports tomorrow. • XLF is at a critical level at 17.20 since the recession and is looking to break out fairly soon. • SPY's gapped down today but rallied all day and closed the day just above 147.00 and basically flat for the day. • Industrial Production was slightly better than expected today where Housing Market Index was slightly lower than expected. • This stock and sector were in play today so much of how the market traded today was dictated by what this particular stock and sector did. • SPY's have not been terribly active lately but are holding their recent gains • AAPL also rebounded today and closed back above $500. Not in the sector but a big piece of the market
  • 7. Intraday Fundamentals • 7:38:34 - Goldman Sachs Group Q4 EPS of $5.60 vs. $3.66 Est.; Revenue of $9.34B vs. $7.83B Est o Goldman reported a rise in fourth quarter profits. Financial advisory revenue climbed 8.1% in the quarter. o Its quarterly profit surged to $2.89 billion, from $1.01 billion, in the year ago period. Earnings per share gained to $5.60 from $1.84 o Its revenue climbed 53% to $9.24 billion • Alibaba Group hired Credit Suisse, Goldman Sachs to handle IPO. Said to be in the $3-4B range
  • 8. Technical Analysis • LT strong stock and has been breaking out of shorter term levels for the past 2 months. Seems slightly over extended at the levels on the daily chart but with catalysts like these it can certainly go up. XLF is at potential break out level and the sector has been showing great relative strength compared to the SPY's as of late. • Today gapped up above the recent few day consolidation • Pre market was strong but could not hold over 139.00 • It had an opening drive down but was bought off the bottom and powered through the opening highs where it began to hold. This was the key sign of strength for me. • The rest of the attempts to hold underneath VWAP were quickly bought up. • Found resistance from the premarket at 139.50 into the morning before breaking out through there
  • 15. Trade Review • What was the psychology behind the move? Strong technical stock mixes with strong fundamental news. Long term this is a name that people want and it showed by holding its gap up and little profit taking throughout the day. The aggressive buying off the 138.00 level, the bottom, through the highs was the strong signal for me on top of its gap up. • What is the pattern/s that I need to remember? Strong buying in premarket, sell off on the open so the big money can get in at their prices and then an explosion off the bottom through the open highs (this is the sign of strength for the day). Consolidation and failure to hold below VWAP. Add when intraday resistance is broken. • How did I do? Watched every tick on this starting in the pre-market and this was my focus and A+ setup for the day therefore I gave it the appropriate daily risk. It was difficult for me to stay in this and after getting slipped I had risked more than I had intended and did not leave myself enough room to feel comfortable playing the breakout. Should have captured more profit in the premarket and lightened up before the opening bell and managed my risk better during the day to give myself a better chance of capturing the high probability move. Need to make sure im not micro managing too much in the middle of the day and giving the stock the respect it deserves to make the big move. Idea was there just weak execution. Trade
  • 16. Trade Idea • • Going to have to play it by ear with C reporting tomorrow. Potential pullback to 140.00 and 139.50** would be potential support areas • to get feelers on for some continuation. Will also be using the 2 day VWAP as an indicator of which support areas might offer the best entry. ALERTS: 141.50, 140.00, 139.50***, 138.50***, 138.00
  • 17. Going Forward Being at the very beginning of earnings season, I am likely to come across a good amount of setups similar to this one today • Things I would do the same that are worth a trade: o playing for an opening drive on a super strong stock technically and fundamentally trading above all recent levels o playing for a failed break down if it presents itself - really like the psychology of these plays o look for a breakout from an opening range after holding opening move and accumulation • Things I would do differently: o I think getting in a little before the big move can be helpful to improve average price and confidence on paying the break but keep it smaller until can define risk better with in my own risk parameters o Was trying to build too big of a position before the break; can wait and pay for more and play those added lots tighter. Had I been more patient, the stock offered very easy low risk opportunity to get in before the break o Just because I watched every tick since the premarket and have developed a feel for the stock and a bias for what it might do, need to maintain a sniper's mentality and let the opportunities come to me and be ready to jump on it instead of fighting it