HOW VHC MADE ME FEEL LIKE I WAS LOCKED IN A ROOM WITH A PERSON FROM CHINA, ZIMBABWE AND MEXICO
With every trade I make in the markets, I have a scenario plotted in my mind of what a stock that I am long or short should do. For short-term trades, I typically initiate positions around areas where I know what to expect under most circumstances. I bring this up because a stock that I was short since Friday (VHC) managed to take the route I least expected today. That caused me to push the ejection button and parachute out as I became unsure of what to expect next. Whenever my road map in the markets becomes clouded, I have learned to turn the car around and wait until the roadmap is clear before driving another mile, risking getting lost and never being heard from again.
With VHC I had the following ideas:
1. Following the strong close on Friday I was expecting either a sharp gap up or perhaps a somewhat substantial down open. Instead, it opened up slightly down and just drifted around for the first hour of the day. Coming into the day, I knew that this type of action in the first hour of trading was the worst case scenario, as it opened the door to dull sideways trading. Dull sideways trading in a heavily shorted stock that has been dissecting the shorts is nearly always a bad thing for new shorts. I fell into the new shorts camp. One strike against me.
2. I knew that 40 would be an area that would create a substantial amount of stops to go off for momentum players and shorts who had enough of the pain. Stocks are attracted to nice sounding round numbers just as they are to important technical levels. When VHC broke 40 today it may as well have broke 38.72. It acted as if the number meant absolutely nothing. Just kept drifting around the 40 level. No hysteria amongst shorts and no momentum players really playing along. Two strikes against me.
3. My thinking then became that the short sellers have been rinsed from the picture for the most part, when they see that there isn't much trading activity above 40, sellers will come in bunches and drive the stock price down. The stock traded below 40 again as the day wore on. This was the sellers chance to seize momentum as VHC failed to cross a significant round number with any conviction. Take it the other way. Close the stock at 38. What did it do? Just drifted around 39.50 for most of the day. It ended up closing the day at 39.88. This was strike three.
Three things happened today that not only did I not expect, but all three events confused me. It was like being locked in a room with a person from China, Zimbabwe and Mexico. Each one of them was telling me the news in their own native language and I left the room having no idea what was going on at the end of the day.
When I feel that level of confusion and am that far off my road map, I'd rather just step aside and regroup. That's what I did. No harm, no foul.
