The other day I made the call that the Chinese Net stocks were looking toppish, and focused on Sohu as a possible short. Sohu then announced earnings and promptly popped to a new high. Anyone who got short on the 23rd would have been in immediate pain, but let's see where the stock stands now.

Price has been going sideways following the earnings announcement, with the range coiling tighter and tighter. As all traders know, range contraction precedes range expansion, so the next move Sohu makes is going to be strong, and I still believe it's more likely to go down than up. We just have to wait for the market to tip its hand here.

I would try to catch an opening range reversal first thing in the morning since I am good at entering positions off the 10-minute chart and setting tight stop-loss orders. I'd then watch how price acts at the key pivots like $15.10 and $14.80, watching to see the strength of the buyers beneath, and move my stop accordingly.

You need a lot of skill to do these kind of reversal plays; it's not the kind of trade that newbies, who are best at blindly buying and hoping for the best, should ever attempt.

Previous Entry >>> Math for Pornographers