BGZ Trade Entry and Update

With this morning's large gap up in the stock indexes, BGZ gapped down below the suggested 63.00 limit order and opened at 62.26. That is the price I will use to track the trade on the blog from this point.

For people still looking to get in this, I would suggest placing limit orders to get in at 59.00 or better. I am not confident that that price will be reached, so the order may not get filled. I am pretty satisfied at this point with the 62ish price for entry.

To give a little background on big gap ups like this........

Frequently after a large gap up day like today, the price of SPY will close below today's opening within the next couple days. Check out the Quantifiable Edges blog linked on the right for more on this idea.

Also, today is the FOMC meeting on interest rates. Not much expected to change here on the interest rate front. However, when stocks gap up substantially on these days, there tends to be some follow through the rest of the day, and most often close higher than the open. However, for short-term traders, the 3 day returns are very bad if you buy at the open of the big gap. This means that there is a tendency for the "over reaction" to be swiftly corrected.

From my personal analysis of the price and time relations of the markets over the last several months, I think it is likely that this little rally will not last beyond next Tuesday. So I would definitely suggested taking a position in an inverse ETF before that date. I don't know how much further prices will run, but the 87ish level looks to be the most likely area for this rally to stop from my perspective. My advice is not to be fooled about the "stimulus plan" saving the day (at least for the stock indexes). When hopes and anticipation are very high, they can really only go down.

Pete