The set-up: Cree Inc. (CREE) is a gap-down reversal play, which has been flagging out of consolidation to the upside. This is a purely technical swing trade and while it’s a stock I have never traded before – Cree Inc. makes lighting and semiconductor products – it’s my bread-and-butter entry technique, the kind of thing I go looking for and am comfortable using any time and any place I see it.
The play: Given current market conditions, I have been using tight stops; I’d use a break of Monday’s close of $35.07 as a stop loss. That said, CREE may have a continuation pattern set-up that could push shares to $37, creating enormous upside potential — the 10 percent plus I always look for — with little risk.
I’d be a buyer of January’s at-the-money call options if CREE gives me a 10/20 exponential moving average crossover on a 5-minute chart early in today’s session.
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this article was published on RagingBull.com, he had no shares, options or open orders in CREE, but he was planning to watch the stock early in trading today looking for an entry point on the pattern described here. He has never before traded CREE.