PLKC anatomy of gap trap:
7/7/2004
PLKC had just broken .052 on the 6th. it had some resistance around the six cent mark, but seemed to look decent enough. the stock finished strong on the 6th, after a sharp shake, closing at .055x.056, in break out territory (albeit not expansive territory, given the resistance at six). obviously, this was a possible dip and run off a bottom play.
one play traders like a lot is getting into a stock that gaps up, dips, and then makes a new high. many times the stock will go ballistic off the new daily high. its really a cash register, especially in a strong market.
today, the 7th, PLKC gapped up (although only slightly) to .056x.057. dipped to .052x.054. then made a new high with the ask at 10:20am. five traders got fills at .057, totaling 87,600 shares, as the stock was making a new--a nice entry, huh? hmmmm. then the mms skipped the bid/ask up to .058x.060, opening the spread slightly.
now we're rocking, right?
not so fast. mms filled three more traders, totaling 133,866 shares at the .06. almost right away, however, the ask softened to .059, to "let more traders in" perhaps. quickly though, the stock fell apart, accelerating down sharply to .055 amidst volume selling, then .053 and at last .051, making a new LOD. the ask never got above .054 after that.
pure trap.
but, there were lots of clues. three come to mind:
1) the spread widened to move thru the ask HOD off the dip, straddling it to give the appearence ticker speed.
2) there was definite resistance at .06 on the chart
3) the gap was completely insufficient
and finally:
4) as a last gasp, the ask almost immediately begin to tick down after achieving a new high. big time warning there.
another way of protecting from this trap is to enter on the dip's turn, before the high, if you can do it. then watch very close as it attempts the new high.
i don't think the mms designed this, fwiw, i think the resistance simply brought out too many sellers. had the mms set this up, they would have allowed a lot more shares to be sold around that new high. still, don't put it past them, lol.
be careful out there!
