Wellpoint stock (NYSE:WLP) fell 6.61% yesterday providing the volatility needed for day trading. Volume (8M) was also sufficient and the open gap helped as well to verify the downtrend. I didn’t watch the stock from the first trading hours rather than noticed it right in the middle of the day. Otherwise perhaps I would have been able to win more points out of the declining insurance stock if I had short sold at early candlestick patterns. The same applies to my exit strategy which made me trade out at a support level that was broken a couple of minutes later. Anyhow, WLP stock chart is another fine example how to apply technical analysis in day trading strategies.
Although Wellpoint Inc. announced better than expected quarterly earnings ($701m compared to estimated $672m), net profits actually declined in the second quarter from $722m in the year-earlier period. The health benefits company declared third quarter 2011 dividend yesterday of $0.25 per share to shareholders of record at the close of business on September 9, 2011. Anyhow the stock opened with a $2 or 3% gap and after making an attempt to fill that gap, it declined to the day’s low of $68.35. Picking that low as an exit would have been a dream-come-true for every day trader, but substantial profits can be made without actually trading the highest high and lowest low.
The stock was trading between $69.75 and $70 levels when I saw the chart. Although there was a worrying intermediate swing earlier, I was still looking for downtrend continuation patterns to short sell the stock. Besides the $70 support level had already been broken and while the best entry point would have been at $70.50, I highly expected the stock to resume declining to lower prices. I went on and short sold 1,000 shares at $69.79 with a stop loss at $70.
After a long inactivity period WLP stock did go south. At the time I estimated that a good exit point would have been at $69.25 given it was the price level a doji candlestick’s long shadow had touched in the beginning of the day. Trading out there in fact never happened as the stock didn’t lose any speed at that level, allowing day traders like me holding on the position. Finally it almost touched $69 and retraced. Since I wasn’t planning on spending hours watching the monitor, I set a buy to cover order right there and logged off. Minutes later my mobile phone informed that my order had been filled and my account had increased by $700. I was a happy man, but that lasted until today when I checked out the WLP minute chart.
It turns out that the stock continued the downtrend up to the last minutes of trading with some great signals for anyone not trading until then. Lower peaks and lower valleys continued to form in the last 2 hours forcing the stock to trend in a downtrend channel that was well defined. If I hadn’t close the position I would trade out at the session’s close, since I would have used a trailing stop right above the previous peak’s high. Still I’m not complaining for what the US market allowed me to take as a profit day trading this stock without even reading any Wellpoint’s news by that time.