Opening Drive Trade - LNKD

Opening Drive Play

Leo SelyaLNKD

August 3rd, 2012

Strategy Description• The SPY got above important resistance

• LNKD gapped up in the after-hours

• Held above the after-hours high in the pre-market

• Extremely bullish setup that needs be played more aggressively

• Explosive stock that is now more likely to move quickly in our favor

• A type of Momentum Trade

Opening Drive Play• “I cannot make money on the Open,” said by too many traders.

• A pattern that works on the Open

• Excellent risk/reward when you master this trade

• Can be up big $$ by 9:45AM

• Difficult trade

• Quick execution skills

• Gumption

• Capture the Big Move

Big PictureThe SPY has been in an ascending range since early June. It finally got above 138.60 on the Open, which was the resistance level from the end of July.

SPY vs. LNKD

LNKD had been in consolidation between 103.50 and 104 at the top of the after-hours and pre-market action. It finally got above 104 as the SPY got above the 138.60 level.

On the open, the SPY traded higher and LNKD made a push towards 108 which was the next major level. This stock had fresh news, but the bullish pre market price action coupled with the strength of the SPY, made it a better opening drive trade overall.

Trade Idea• In the after hours, the stock traded above the prior day high and held above 100. Then

in the pre-market, the stock drove over 102 and held between 103.50 and 104, above the action from the after hours.

• This shows that not only was the reaction to earnings viewed positively, but the buyers clearly had control. This is my favorite pattern for an opening drive long. Seeing this pattern made me confident that I could take on a bit more risk in a stock that is normally rather thin and risky.

• Probability is very important. There is a difference between risk/reward and probability. Just because a stock has a tight 5 cent consolidation and one is comfortable taking the trade, especially beginners, doesn't mean that it is likely to work.

• Having this probability on my side, allows me to pay through offers on the opening drive and hold a core until the next level. The opening drive must stop eventually, thus we must understand where those sellers that had lost will legitimately thing that they have a chance to slow down these powerful buyers that had clearly been wining since the news release.

• Naturally, the first place would be at the next big level of 108 and then the next level after that is 110. Thus, my play was to hold a long on the opening drive as long as it is above the 103.50/104 area and hope for a move close to 108.

• Once the stock approaches the 108 area, my risk reward doesn't signal to hold anymore and I sell once it fails to get above 107.50 after having a battle.

Intraday Fundamentals

•Third-quarter revenue will be $235 million to $240 million, Mountain View, California-based LinkedIn said in a statement yesterday. •Full-year sales will be $915 million to $925 million, ahead of the $880 million to $900 million it projected in May. •Analysts on average were predicting third-quarter sales of $236.3 million and 2012 revenue of $906.3 million, according to data compiled by Bloomberg.

LinkedIn (LNKD)LinkedIn Corporation (LinkedIn) is a professional network on the Internet with more than 90 million members in over 200 countries and territories. Through the Company’s platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. Its platform provides members with solutions, including applications and tools, to search, connect and communicate with business contacts, learn about career opportunities, join industry groups, research organizations and share information. Its members create profiles that serve as their professional profiles and are accessible by any other member, as well as anyone with an Internet connection.

Average Volume: 3.5 Million52 Week Range: 55.98-120.63

Short Float %: 8.0%Average True Range (ATR): 4.65

Long-term Technical Analysis

This shows the 107.70/108 area of resistance.

Short-term Technical Analysis

This shows the 107.70/108 area of resistance.

This shows the hold above after-hours price action in the premarket.

Reading the Tape• I noticed the buying in the pre-market and then I noticed how when offers

would lift, the stock would just hold higher and not really drop out. • Once it got above the 104 offer, it never came back. On a move to 106.50 so

quickly after lifting the 105 offer, the stock gets really steep and this is usually a good place to take sales. That being said, the 105 lift and move gives us a place to pay through 105 momentum and lock in some cash flow.

• We still hold our core from 104 for some, but we take sales once it slows for whatever we paid over 105. Similarly, later when it pulls back to 104 and then lifts the 106 offer, we pay and capture the move towards 108. When the stock later forms a mini range between 107 and 107.50. It then forms a mini range between 107 and 107.40. This is a sign that the sellers stepped down.

• Finally, a weaker tape and a change in character. Then when it lifts 40, it can't lift 50 cents and gets back below 40 cents. This is a huge change in character. For the first time since 104, the sellers are winning the battle over the buyers. I got much lighter here and then hit the rest below 107.

• It is very important to get a feel for stock on the open. It is OK to be aggressive early on, but when things change, you must be disciplined enough to understand that this particular trade is over. There may be more in the stock, and it might not be done going up, but this opening drive has ended.

Trade Management

I got long when the stock was 103.50 by 104 and paid for more over 104. Then 105 held the offer and I paid for more when that lifted again and sold into the momentum towards 106.50. I continued to hold my core from the 104 area because this setup can lead to an opening drive and a trend.

When the stock pulled back towards the 104 area, I bought a bit more and then sold again into momentum. Every time offers would hold around 105 or 106, I would buy more through the lift because I can. The pattern still worked, it is an opening drive.

Later around 107, the stock was tight between 107/107.50. Then it became 107/107.40. The sellers finally could step down and defend a price, this never happened before. It is also below the 108 area of resistance. 40 cents lifted but 50 held and then it re-offered 40 cents. The tape got much weaker I got much lighter here and got flat below the 107.

Trade Review• This was a good trade. As traders, we need to use screen time to our

advantage. When we see that certain trades work really well over and over again, we need to take advantage the next time we see it.

• I knew that this was a tough stock, but the PROBABILITY was very important and allowed me to have confidence and get in the stock regardless. I knew that it had potential to drive on the open to the next level which was several points away.

• However, I think I could have done a few things better. I could have been better at buying it back near 104 and paying for more. If I pay for more through the 105 lifts, I can hold more for the bigger move and take more sales along the way, making more money.

• Sometimes it is tough to gauge a pull-in vs. a reversal on the Open. Thus, buying into the 104 area isn't the best place to add a lot, but certainly a place to add some. The place to add a lot is paying through these offers as long as the pattern doesn't chance.

• Everyone tries to get in between 107 and 107.50 but in reality, this is a weak tape, the real place to make money is by having confidence, being aggressive, and capturing this opening drive. Once I already made money on the move pre market, I could have been a bit more aggressive with size once the bell had opened.

Trade Idea

•Long above the resistance at 108.

•Watch 104 as possible support for a pullback play.

•Longer term resistance is at 110 and 115.

Contact information

[email protected]

@mikebellafiore