On August 29. SUNW surprised the market with an earnings warning the stock gapped down strong on the next morning and was therefore falling into the dumper category.
The basic dumper setup is a buy after the first uptick. Since dumpers have been very weak all summer we actually reversed this setup to a short after the first downtick. But again the behavior of the dumpers is changing. Some reverse pretty nice and give us good longs, while others are still getting more selling and the best way to trade them is short.
Considering this, it wasn't easy to gauge what SUNW will do after the open. I still felt that a short was more likely having in mind what CIEN did the week before. It all seems like that the "big" stocks are still getting more selling after the open. SUNW is also a stock that moves pretty slow because of it's huge float.
Considering all this it was pretty clear that I didn't want to trade the first uptick or downtick, but rather wait for a first high and low to be made and than trade a breakout out of this first range (not considering the open price).The setup at this point would be to go long above the first high with a stop below the low or to go short below the low with a stop above the high. There is more to it, but I would like to keep it simple at this point.
What you seen in the picture is, that SUNW was trading in a very tight range between 11,6$ and 11,75$ and actually tested the low a few times and overall held pretty weak. I was now looking for a short entry below the low with a stop above the high. It was a 15 cent range which gave me a very nice risk/reward.