Cheapies Are Back in Play

This is my first article since the tragic events in New York on Sept. 11. Somehow trading seemed trivial after tens of thousands lives were changed forever in a blink of an eye. My thoughts and support are with the heroes: firefighters, policemen and volunteers who still work tirelessly on a task unimaginable to the rest of us.

Last week panic sellers and opportunity buyers battled and, in the end, panic sellers won. An old trend emerged again late last week: the return of the "cheapies." If you remember from Return of the Cheapies, these stocks have little downside potential, even in a bear market. A good percentage of the time, they tend to move up from the open and make good buys at the first uptick. Even if they move down from the open, the first uptick is a good buy because when they are back in play, the downside potential is minimal even if the market dumps.

Last Friday I watched a group of them in the premarket to determine which ones to play. Here's one particularly illustrative example from that group.

As you can see from the above chart, the Nasdaq was gapping down. I picked Invision Technologies(INVN Quote), a maker of airport security systems, because it was not gapping down and released positive contract news.

As you can see from the above chart, Invision closed on Sept. 20 at $7.92 and gapped up on Sept. 21 to $8.40. I watched it in the premarket and it showed solid upward momentum just prior to the open. I entered the trade right at the open at $8.40 and thought I would have to exit the trade when it immediately dropped to a low of $8.00 at 9:33 PST.

I did not exit because I felt this was profit-taking from the climb the day before. Had it gone below $7.90, 50 cents from the open price, I would have exited, taken my lumps and moved on to the next trade. I also stayed in the trade because the general market was still climbing.

As you can see from the chart above, it bounced at the $8.00 level and climbed all day long. I gave myself some wiggle room and held the trade through the oscillations on the way up due to the gravity of the news and the powerful upward momentum of the general market.

I exited the trade at 11:43 PST when it made what looked like just another interim top of an oscillation as buying slowed down. The stock's movement paused and selling came in. I chose to exit at that time because every stock on my screen began to sell off and the Nasdaq started to dump. I exited at $9.35 for a 95-cent gain. Not only was this a good story stock, my tracking also showed that cheapies again were in play. If you're not tracking your patterns, you're missing an important tool in the trading game.