Here's one of my favorite daytrading patterns

The stinky 2.50’s level is a stock price phenomenon where momentum tends to stall out and exhaust in $2.50 increment levels (example $10, 12.50, 15, 17.50, 20, 22.50 and so forth). When stocks breakout or breakdown, these 2.50 levels tend to be de facto support and resistance levels once you factor in a .10 overshoot. This means that if a stock rallies higher into 32.50 levels, we expect 32.60 to be the coil resistance on the 2.50 overshoot. In fact, 32.40 x 32.50 x 32.60 is the stinky 2.50’s range. If a stock slips down through the 32.50 level, we expect 32.40 to hold the momentum support. The faster a move is to a 2.50 level the stronger the resistance. This is especially true on sharp momentum moves up and down and also on gaps. Knowing these levels ahead of time allow you to do two things well. It allows you to SELL your longs into the coil resistances as well as short hard spikes.

Amgen (AMGN | Quote | Chart | News | PowerRating) was a great example yesterday as it gapped up over $2 on acquisition news. AMGN took a spike off the open into the 79.50 levels. We promptly stepped in SHORT at 79.45 knowing that 79.50 and then 79.60 would be the ultimately momentum resistances on the 2.50 levels. Once the 1 minute stochastics peaked out, AMGN exhausted at the 2.50 levels and promptly slipped back down as it channel tightened back to the 3 minute 5 period moving average at 78.80 for nice quick .60 scalp.

These stinky 2.50s levels work great in post market action especially on news or earnings. Anytime a stinky 2.50 level is initial hit, expect an exhaustion back the other way.

The noodles (Nasdaq 100 eminis MARCH contracts) are still tight at 1718 x 1714.50 with a lack of channel. The stochastics look like they are coiling up setting up a potential for a daily pup which would take noodles to the 1732 upper daily Bollinger bands.

Feel free to send any questions or comments to jay@undergroundtrader.com