Pre-Market Trading JPM February 24, 2009

This is an example of pre-market trading JPM (J.P. Morgan), which provided a good short selling opportunity. After the markets closed the previous day, J.P. Morgan announced they would be cutting their dividend, which would save approximately $5 billion dollars per year.

The stock initially went down a little in after-hours trading yesterday, but only briefly. It then reversed and moved higher for the remainder of the session.

Cutting the dividend in this case, has good arguments for the Bulls and for the Bears. In this case, looking for a trade could have been made whether or not the news was involved or not.

For the Bears, anyone holding JPM for the dividend would likely consider selling their positions as they may have thought the dividend was safe.

On the case for the Bulls, cutting the dividend may help enable JPM to pay back the government loan money and allow JPM to operate more freely, with less government guidance and intervention.

Using this news, you could now pull up a pre-market chart and see that JPM went up to the $20.50-$20.80 price range, with about a 5 minute spike higher at 8 a.m., only to decline back to the $20.50-$20.80 range.

Pre-Market Trading

Next, you pull up a 2 day chart and you can see that the upper resistance level met in pre-market today, was the same upper resistance level met in the after-hours trading session the day before. You can also see that this same area was an upper resistance level at least 4 separate times in the previous two days.

Pre-Market Trading

Taking a look at a 5 day chart, you would then see that the same area was a previous support level as well.

Pre-Market Trading

Being that the $20.50-$20.80 price range previously had a strong significance either as a support level or a resistance level, not breaking through this level in pre-market this morning would have signaled a good short selling opportunity, with a stop loss at or near $21.00 in case you were wrong.

Taking this trade on this morning would have provided an opportunity for 1-3% profits on a short position by the time the market opened at 9:30.

For anyone recognizing this occurrence, a second opportunity came about near 9:45 a.m. also, when the stock bounced higher from the open to the $20.50 area only to fail breaking through once again.

This pattern happens frequently and can be a high probability trade when combined with the right research and analysis. Keep a watch out and see how many times you recognize the same thing happening.

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