Market Lab Report - Review of Pocket Pivots and BGUs for the Week of 3/28-4/1/16

Published : April 3 2016 at 21:13 ET

Notes from Gil's and Dr. K's trading journals regarding this past week's pocket pivot and buyable gap-up reports:

Ellie Mae (ELLI)

GM - ELLI is in new high price ground and somewhat extended. I would look to buy a pullback into the 10-day line at 85.49 as a lower-risk entry opportunity.

Dr. K - If you examine the prior uptrend between Jan-Aug 2015, ELLI routinely hits its 10- and 20-day moving averages, thus buying at either moving average can work. Use market strength or weakness to guide your decision. 

Facebook (FB)

GM - FB provided buyers with a nice pullback on Friday that pushed right into the 10-day moving average and then turned back to the upside by the end of the day, closing near its high for the day. This is a typical example of how you would prefer to handle most pocket pivots - look to buy on constructive weakness into a logical support area. In this case the 10-day line worked just fine.

Dr. K - This is a mega-cap institutional quality name thus major funds will own a piece of this company since you cant get fired for owning what everybody else owns. Thus should major averages continue their uptrends, FB should continue right along with them. One headwind would be the mandate these huge funds have which says they cannot own more than x% of any stock, but the beneficial tailwind from uptrending markets is always stronger. 

Cantel Medical (CMN)

GM - This is a very thin stock that trades a little less than 200,000 shares a day. Given its thinness and hence potential for price volatility, I would look to buy into this on a pullback to the 20-day moving average at 60.90. That has served as solid support for the stock throughout March. As a general rule, speaking for myself, this stock is too thin for me to play around with. I prefer bigger institutional-grade stocks.

Dr. K - Some markets favor big caps while others favor small caps. The QE-market has favored larger cap stocks, thus smaller cap stocks which some members prefer such as CMN have to contend with that small cap headwind. Also note that the way markets are made in smaller caps subjects them to a greater degree of volatility which further increases risk. Nevertheless, any smaller cap names we mention come with these two caveats. On the plus side, CMN has had a number of relatively clean uptrends.  

Webmed (WBMD)

GM - a BGU coming out of a slightly ascending price trend. The stock held very tight on Friday after Thursday's BGU on huge volume and remains in buyable range using the 60.70 intraday low of Thursday as a selling guide. 

Dr. K - WBMD closed at 62.45, so if one uses a 1-2% undercut of the buyable gap up low as their sell stop, their current risk in buying it here is 4-5% which may be acceptable to some depending on their risk tolerance profiles.

Intuitive Surgical (ISRG)

GM - This stock is a bit on the wiggly side, so I would look for a pullback to the 20-day line at 584.80 as the lowest-risk entry point. The line has served as solid support for the stock so far since the market lows of early February.

Dr. K - The stock's upside reversal on higher volume is a bullish sign but the stock tends to trade a bit loose at times, so buying on weakness to reduce risk is a good strategy. Should the market continue to show strength given its recent behavior, one may decide to buy ISRG on relative weakness which means it may not reach its 20dma before going higher. This is where context becomes essential as well as a well-trained chart eye.

GoDaddy (GDDY)

GM - Basically speaking, a breakout from a cup-with-handle base that is also a pocket pivot. Stock is fairly close to its 10-day and 20-day moving averages which can be used for tight selling guides or reference points for buyable pullbacks from Friday's close, should they occur.

Dr. K - GDDY's high volume upside reversal base breakout is a strong pattern. It should move higher from here unless the general market starts to falter. Its 10- and 20-day moving averages serve as support as they also coincide with its base which also serves as support. 

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