Variables

• Relative Volume: >= 3
• Gap: >= 3%
• Average True Range: >= 1.0
• Average Volume: >= 1M
• News catalyst that is unusual and unexpected.
• Significant changing fundamentals: margin, full year guidance, goverment investigation, core of the business is improving, new product.
• Below long term technical key level.
• Holding below VWAP or the opening range.
• Battle develops on the level 2 or key levels matching thesis.
• Tight spread displayed premarket and on open.
• Stock correlates with the overall market performance: QQQ, SPY or RSP
• Stock correlates with the sector performance.

Short Strategy

• Stop Loss is above the high of the consolidation.
• Hold short for a real move, Trade2Hold.
• Add on shallow pullbacks with low volume.
• Add when holding under a key level.
• Cover into significant support levels from the daily.
• Look for an over extented move to the downside on high volume to signal exhaustion and a place to take final covers.

Big Picture

SPY was down 0.6% and QQQ retreated 0.5% in premarket activity as US President Donald Trump’s upcoming tariffs announcement looms over markets. Economists now expect the average U.S. tariff rate to climb to 15% this year from a prior estimate of 10%. Goldman has increased its 12-month recession probability to 35% from 20%.

Health care stocks were falling pre-bell, with the Health Care Sector XLV down 0.5% and the iShares Biotechnology IBB 1.6% lower. XLV dropped from 145.94 to 143.93, -1.32% at the Opening.

Intraday Fundamentals

Johnson & Johnson has spent years trying to fend off lawsuits related to its talc products. Its latest attempt just failed again. The company faces sweeping litigation from accusations that its baby powder and other talc-based items harmed consumers. It had tried to resolve the cases using a subsidiary company’s bankruptcy; this was the third attempt at such a resolution.

The stock fell 3.6% in premarket trading to $159.95.

• RVOL: Premarket and Opening below 2 but increased rapidly over 3 within 20 minutes.
• ATR: 3.90
• Avg Volume: 10.15M
• Institutional Ownership: 72.99%
• Short Float: 0.87%
• Day Range: 165.47 - 156.85 = 8.62
• VIX: 22.06

Technical Analysis

Trade Management

Expected Value

• EV = (Reward * Win Probabilty) - (Risk * Loss Probability)
• EV = (4 * 0.60) - (1 * 0.40)
• EV = 2.00 (B Trade)

Recording

Trade Review

• JNJ was not on my FinViz filtered list before the opening. I learned from this trade, the RVOL of some stocks will increase very fast as soon the market opens.
• The news were already published before the open. I will check hot news and look for stocks with significant fundamental changes before the market opens.
• At 9:35 the stock traded with low volume into the VWAP and support level at 160, which is a missed opportunity.
• Have observed holding the offer at 158.30 on the tape and it is also distinc on the chart. Felt a bit uncomfortable because the stock was holding 30 ticks below VWAP. Usually I want to set the stop above the VWAP. It was a reason for me, not to add size when it finally broke down.
• The low of the day was my target. The stock broke down pretty fast and I had 50 shares left. Moved the stop loss above the low of the day and let the trade develop. Got stopped out, but the stock reversed down again and closed at 153.24. Missed a big move, but I followed my rules to exit and made one good trade.