Market Lab Report - Weekend Review of Pocket Pivots for the Week of January 11-15, 2016
Trading Journal notes from Dr. K and Gil regarding Pocket Pivot reports sent out this past week:
GM - FB violated its 50-day moving average on the first trading day of the New Year, setting the stock off on a choppy path down to its 200-day moving average this past Thursday. When it hit the 200-day line it reversed with the market on very heavy volume for a supporting type of pocket pivot. This sort of move is difficult to buy after the fact, but Friday's gap-down pullback brought the stock closer to the 200-day line. It closed Friday just over 2% above the 200-day line. Since I would never buy this on strength, the pullback obviously catches my eye, and the fact that the stock is so close to the 200-day line puts it in a lower-risk position if one wanted to try and catch a long trade and bounce before FB announces earnings at the end of the month. Buying as close to the 200-day as possible while using that as a guide for a very tight downside stop keeps risk to absolute minimum.
DRK - This was one of the first stocks to hit new highs after the correction in August 2015. It is one of the "FANG" stocks, a group of stocks that had shown pronounced leadership as witnessed by the strength in the NASDAQ-100 index. But as the major indices corrected more than 10% for a second time just recently, almost no stock was left untouched. FB consequently bounced off its 200-day with enough volume to qualify as a pocket pivot. But as discussed in a recent PPR report, buying on weakness has been a better strategy. And with the markets still in a sharp downtrend, one should wait for a bounce in the majors before putting any capital to work on the long side. This bounce may come as early as Tuesday so keep a watchful eye.
GM - EQIX traded a huge amount of volume on Thursday when it reversed off of its 50-day moving average and closed up strongly for a pocket pivot. The pullback on Friday closed just over 1% away from the 50-day line, which puts this into a lower-risk entry point if one were looking for a possible long trade on the basis of the pocket pivot. EQIX isn't expected to announce earnings until February 18th, so it has more time to work than FB. Whether FB or EQIX can succeed from here is likely going to be a function of how the market behaves over the next several days.
DRK - Stocks such as this one that can buck market corrections not once but twice in a short span of time are certainly worth a closer look. Keep a close eye as the major indices may stage a sharp bounce as early as Tuesday. One could try their hand here with a stop at say 1% under its 50-day for a total risk of roughly 2.5% assuming their entry is at Friday's closing price.
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