| ShadowTraderPro Swing Trader for May 12, 2009 The ShadowTraderPro Swing Traderis your every morning dose of market reality brought to you from theresident geniuses at ShadowTrader. Overseen by Chief Equity Strategist,Peter Reznicek, each issue contains a full report on the prior day'saction, including market internals, technicals, and what sectors werehot and cold. Each issue also includes the ShadowTraderPro ModelPortfolio, which updates members on what stock plays STPro is currentlyengaged in officially, as well as provide a daily list of long andshort setups for more self-directed traders and investors. To get the most out of your subscription, please read our Swing Trader User's Guide If you have any questions or comments regarding commentary or plays in this newsletter, please email to swingtrader@shadowtrader.net. The Big PictureGood Morning, Traders. We would like to discuss the short entry we made on United Health Group, Inc. (UNH) yesterday. It is a classic example of applying the guidelines ShadowTrader provides in the Swing Trader Users Guide for dealing with gaps above or below entry triggers. First we'll review the set up of UNH on the daily chart and the reasoning behind why we thought it was a nice short opportunity. Then we'll zoom in on a five minute chart to look at the gap below our short entry point and how we handled it.  As we stated in yesterday's Bulls and Bears section, UNH made a reversal bar into prior congestion (orange oval) that was now acting as resistance. We called the short of UNH a counter trend play because the stock was at the top of the latest higher-high in the midst of a beautiful sequence of higher-lows and higher-highs. A reversal bar at the top of a new higher-high that also meets a resistance level of prior congestion is a sensational opportunity for a trader to act like a sponge and soak money out of the market by trading the leg down from the new higher-high. The blue rectangle highlights the fact that price does not have much support so our first target, placed at the previous higher high of 26.10, should not be difficult to achieve. If the stock moves through 26.10 on the leg down we may hold a portion of our position with a second target near the face of the ascending magenta trendline. We have also placed ovals at the points in time when the on-balance volume (OBV) levels were similar to Friday's level (green oval). This is simply to illustrate that the stock does not have any more significan buying support than it had when prices were at similar levels in the past. Finally, you might recall that the S&P 500 Index showed strength on Friday as it closed near it's highs for the day. In contrast UNH climbed higher on Friday, but unlike the Index, it lost strength later in the day and closed at the lower end of it's price range. This price weakness relative to the borader market and all of the other information provided by the daily chart indicated that this was a short trade with a higher probability for profit. Before the bell yesterday, we were prepared to issue a ShadowTraderPro Advisory and to enter the trade for the ShadowTraderPro Model Portfolio. Let's look at the five minute chart of UNH below to discuss the entry into the trade.  As noted on the chart above, UNH gapped down at the open. The Swing Trader User's Guide states, "If a stock is listed in Bulls & Bears with a specific trigger point and it gaps up or down either over or under that trigger point, then some amount of discretion needs to be applied. Our basic rule of thumb is that we do not want to chase any stock more than 1% from its entry. This 1% is the absolute furthest point away from the entry that we would accept if it was a play that we had a high level of confidence in. The preference would be a gap well below the 1% limit." In accordance with this approach, we did not enter the short trade at the open because price was trading farther away than 1% (blue dot) from our short entry point of 28.44 (red dot) as noted on the chart. At that point there are only two outcomes. The first is that price continues lower and we miss the trade entirely. In this case we simply move on. The second possible outcome is that after the initial opening gap, price will work it's way back up to close the gap. In this case, there could be an opportunity to enter the trade. As illustrated on the chart, during the second five minutes of trading, price did rise to almost completely fill the gap. As it was rsing, we sent out a ShadowTraderPro Advisory with a call to short the stock at 28.44 and we received a fill at that level (green dot) for the trade in the ShadowTraderPro Model Portfolio. Anyone who was interested in shorting UNH going into yesterday's open caught a much better entry than what was offered in the first five minutes of trading IF they were following the guidelines set forth in the Users Guide. We did not create the ShadowTraderPro Swing Trader Users Guide because we needed practice typing. It is a refined set of trading principles and strategies that is literally the culmination of years of trading experience. If you truly have the desire to be a successful trader, study the contents of the users guide until you know it cold. Then, when the market sneaks up on you, there will be no panic or confusion. You will know exactly what to do. We've lead you to the water, the only question now is will you allow yourself to drink? Under The Hood
Heads Up
Bulls and BearsLong Ideas
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