Pocket Pivot Review - EXP, EDU 7-20-16

Published : July 20 2016 at 17:05 ET

Construction materials maker EXP had a pocket pivot breakout. We reported on EXP briefly here: https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-review-of-pocket-pivot-reports-edu-added-for-the-week-of-july-11-15-2016 as it was one of the stocks possibly pulling back on constructive volume within its base. 

EDU was in a low risk position to be bought on Friday as it had a pocket pivot on Friday off its 50-day line while still showing strong fundamentals. The sell stop could be placed just below its Friday intraday low. It then reported earnings today after which it gapped lower, opening at 40.07, or -4% lower from its closing price of 41.76 on Tuesday. Naturally, it would make sense to not ask questions and just sell at the open since such gaps lower can quickly become a lot worse. 

It instead did an about face and marched higher to close up 6.7%.

Risk control on gap downs is more important than trying to field all the profits, so selling at the open was the wise choise. That said, one could have rebought their position in EXP after having sold it at the open using the 6/20 moving average lines as a guide, but this is tricky as when the stock went to profit, it is tough to know it would not sink lower once again. But the 6/20 would have kept losses to a minimum.

Fortunately, most stocks don't behave this way as -4% gaps lower usually spell trouble ahead for the stock. So getting whipsawed is less likely. 

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