STX - Day 2 continuation swing short

STX
Day 2 Continuation Swing
Short
ESu
4/15/16
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Big Picture
• Yesterday Seagate announced selected preliminary financial information
for Q3 of FY16. Seagate expects to report revenue of approximately
$2.6 billion and non-GAAP gross margin of approximately 23% for the
fiscal third quarter 2016. These preliminary results compare to the
Company’s previous forecast for fiscal third quarter 2016 of revenue
of approximately $2.7 billion and non-GAAP gross margin of
approximately 25.6%.
• The difference in the Company’s revenue and non-GAAP gross margin
from its forecast was driven primarily by reduced demand for traditional
mission critical HDD enterprise products, reduced demand for the
company’s systems and silicon products, reduced demand for desktop
client products primarily in China, and the Company’s decision to not
aggressively participate in the low capacity notebook market.
• Investors do not like margin compression and reduced demand, especially
for a company’s core products; stock opened down ~11%
• Extremely bearish LT chart

Intraday Fundamentals
• ATR: 1.7
• Avg vol: 6.2M
• RVOL: 2.9
• Float: 294M
• Short float: 12%

Trade Strategy
● Look for continuation to the downside; entry should be against resistance
below yesterday’s low with stop above it
● Get bigger in the trade or add momentum lots below important levels
(e.g., VWAP and the ~26.20 52-week low)
● Take off the trade into a steep downmove or consolidation above support

SPY Daily

STX 2-Day Chart

STX Intraday
Yesterday’s low
52-week low

Trade Management
Initial entry below yesterday’s LOD/technical pattern with stop
at the whole #
Add against VWAP
Momentum lot below
~26.20 52-week low
Partial covers into steepness
and consolidation

Trade Review
● The important LT, 2-day, and intraday levels are clearly defined; just
play off them and cover if they’re not being respected
● Don’t overreact to the tape -- unless there’s an all-day selling pattern
just use it to time entries and exits
● Remember to use multiple timeframes
● Stay with the trade and keep pushing the stock until it stops working

STX - Day 2 continuation swing short

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