PreMarket Prep Recap: End-Of-Quarter Price Action, Insider Buying Strategies

At the top of Tuesday's PreMarket Prep show, the end-of the quarter price action in Visa Inc V was analyzed.

The reason for that: several large orders were entered by funds to close out or initiate long-term positions.

In the case of Visa, a $2-million-plus sell order was placed for the closing print on Monday. As a result, the designated market maker had to take the issue low enough to attract that much buying interest.

Taking The Other Side

From a shorter-term trading perspective, it is sometimes advantageous to take the other side of these large orders.

The price action from the large player is often retraced. Keep in mind that taking the other side of these trades is risky, and it is important to have access to after-hours trading, as the reversal of the price action is sometimes immediate.

An investor must also have the required capital to hold the position overnight if unable to exit in the after-hours trading.

In the case of Visa, the issue collapsed in the final minutes of trading from $174.33 to $172.01 (the low and close for Monday), and within 22 minutes was trading in the $173 handle.

The stock was up 0.98% at $174.47 at the time of publication. 

What Needs To Happen For Monday's S&P 500 Rally To Continue

As a result of the Jewish holiday on Monday, the rally took place on lower-than average volume across the board, which is the opposite of what technicians want to see.

Despite there being follow-through in the premarket trading from Monday's rally, it was noted several times during Tuesday's broadcast that the December S&P 500 index futures were in the area of the highs from last Thursday (2,995) and Friday (2,993), with the premarket high being 2,994.50.

As it turns out, the index was turned back just shy of that high at 2,994.00 and has sharply reversed course.

Breaking Brokerage News 

During the broadcast, Charles Schwab Corporation SCHW announced the end of commissions for its customers, which had a devastating impact on all of the online brokerage stocks.

The move was viewed as a drastic one, and investors should be cautious when attempting to pick a bottom in affected issues.

Notable Insider Buying Strategy

Another often talked about short- or long-term trading strategy is following the lead of large insider transactions, particularly on the buy side.

Insiders may sell an issue for many different reasons — taxes, large personal purchases — and the primary reason for buying is that the price is cheap from their vantage point.

Ulta Beauty Inc (NASDAQ; UTLA) is a good example of this.

After being shellacked following its second-quarter miss, the issue swooned from its Aug. 29 close ($337.45) and did not bottom until Sept. 16 at $224.66.

That prompted a director at the company to add 359,000 shares (ranging from $235 to $250) to their portfolio at the end of last week, bringing their total stake in the company to 2.03 million shares.

PreMarket Prep co-host Dennis Dick was able to take a long position in the issue in after-hours trading, looking for a follow-through on Tuesday, when the news became more mainstream. Unfortunately, his FIFO approach to short-term trading (first in, first out) had him exit the trade at the opening print of $253.45. Trading can always be better with hindsight, but the stock was trading at $266 at the time of publication. 

Midway through the show, Angie Setzer, vice pesident of grain at Citizens Elevator, dissected the recent rally in the grain markets and evaluated the prospects of a follow-through.

Keller Joins Wednesday's Show 

On Wednesday's show, David Keller, chief market strategist at stockcharts.com, will join the show with his take on the markets and a discussion about the StockCharts platform.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.

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