CBK raised guidance after the close yesterday causing the stock to trade up (albeit on very thin volume) in the after-hours session. Currently the stock is indicated to open between 6.12 – 6.25 (pre-market bid/ask). I’ve received a couple of questions on the stock so here are my thoughts on the stock.
The opening price yesterday was 5.51 so I will consider that the entry price. Using a 3:1 R/R (risk to reward ratio) based on the previously stated preferred target of 3.80 (T3), that would give a suggested stop of 6.08 (entry price of 5.51 – target of 3.80 = 1.71 profit. $1.71/3 = 0.57 so you’d add 0.57 to the entry price to come up with a stop of 6.08).
Those of you who have followed the site for a while will probably recall my methodology for modifying my stop-loss orders when caught on the wrong side of the gap. I usually check the broad market and key stocks, including my positions in the morning to see where they are trading. Most trading platforms offer a setting to view streaming charts or quotes during the extended hours trading session. When I do notice a position is set to gap beyond my stop criteria, I will cancel the stop-loss order (if standing as a GTC order) and then wait until shortly after the stock has opened before re-entering my stop-loss order just below the low of the active (regular) trading session. How soon I do so will depend on various factors such as the trading history of that stock, what the broad market is doing, etc… but typically 5-10 minutes is enough to let the dust settle for most stock.
There have been a few successful examples of this strategy posted on the site over the last year with the most recent being that big gap down on HPQ on November 20th. Utilizing this flexible strategy turned what would have been a substantial loss on the trade into a 16.7% gain on the trade. The posts from that morning can be by clicking here and here. Those posts further explain the reasoning for this stop-adjustment methodology.