Trader’s Narrative

On Thursday, Movado gapped up and didn’t look back as it rocketed higher on 5 times normal volume. I mentioned that it might be a good idea to keep an eye on it for potential follow through on Friday.

Usually, sharp moves fueled by above average spikes in volume have multi-day momentum. Whatever the instigating news or event, it takes the market by surprise. Hence the clamor of volume activity. And as different participants in the market react to varying degrees of intensity and speed, the result is that the move is not nearly as fast as you’d expect (for a perfectly efficient market).

There are quite a few academic studies which show this empirically. Unfortunately I don’t have a link handy right now. Here’s a look at Movado on Friday:

Right off the bat, it was obvious from the volume that a lot of people were still interested to trade MOV. The volume wasn’t as intense as the previous day, but it was still quite uncharacteristic.

Price settled into a nice range ($22.75 - $23.10) in the morning. The trade was to go long on the break of the range’s high, with a stop loss below the range’s low.

Classic range breakout setup.