Trading Journal Notes from Dr. K and Gil regarding this past week's pocket pivot alerts:
Dycom (DY) 11/2
This is a good example of why one need not chase strength in this market, instead choosing to lay back and wait for an opportunistic pullback to occur. In this case DY pulled right into its 10-day line and found support, closing near the peak of its daily price range. When a stock pulls into the 10-day line this on an intraday basis, one can enter a long position as close to the 10-day line as possible. Remember, when its coming in during the trading day, you do not know for sure whether it will find support or not, but taking the trade as close to the 10-day line as possible allows you to keep risk at a minimum by using the line as a guide for a very tight stop.
Helen of Troy (HELE) 11/2
Nothing too special here. A nice pocket pivot within the base is followed by a below-average volume drift up to the top of the current price range extending back to early October. By not chasing strength on the pocket pivot day, one could have used the pullback on the following day to enter the stock close to the 10-day line. An undercut of the lows of the rounded 3-week base that formed after it gapped higher could be used as a stop.
Norwegian Cruise Lines (NLCH) 11/2
A pocket pivot before earnings failed after earnings were release. Notice how PFGC has this sort of "Ugly Duckling" characteristic where it pulls down and starts to look ugly but finds support back in late September? That is not unlike what we've seen over the past four days. When the stock gapped down on Tuesday it was able to hold the 50-day line with volume picking up sharply. It then held the 50-day line for the rest of the week. This could be an "Ugly Duckling" type of situation where the stock is able to hold the 50-day line and return back to its prior highs. The proximity of the 50-day line does provide a guide for a very tight downside stop.
Of course, when a stock gaps lower as this one did after its pocket pivot due to its earnings report, one should sell, no questions asked.
Performance Food Group (PFGC) 11/3
This one failed right after earnings on a high volume reversal. No interest in this one unless it shows some constructive action.
Take-Two Interactive (TTWO) 11/3
TTWO pocket pivoted a couple of days before earnings, perhaps an inkling of what turned out to be a strong earnings report on Thursday after the close. On Friday, TTWO gapped up on the news but formed a "shooting star" where it closed right near the low of a long daily price range. One could use an undercut of the gap up day as their sell stop, much as one would do on a buyable gap up. The amount of undercut is contextual to the stock's chart and general market action. For higher RS stocks, this is typically 1-2% under the lows of the gap up day, but watch for any support such as an important moving average line even if it means putting your stop a little more than 2% as was the case with IDTI just recently.
CDW, Inc. (CDW) 11/3
CDW beat earnings estimates but fell short on revenues in Thursday's earnings report. On Friday the company announced that it received a request for production of documents in connection with an investigation by the SEC related to vendor partner program. This sent the stock careening to the downside on heavy volume. This might be a short-term news influence that creates a possible buying opportunity here if, and as one can determine, a logical area of support can serve as a quick downside stop, e.g., the lows of the current range extending back to the last week of October, the 50-day moving average, etc.
Lending Tree (TREE) 11/6
TREE had a buyable gap-up in late October and then pulled into its 10-day line as volume dried up. On Friday it posted another pocket pivot. Again, we see how avoiding chasing the strength on the late October buyable gap up pays off as one gets a much better and lower-risk entry opportunity on the low-volume pullback into the 10-day line. The general market this year has been void of strong uptrends well beyond old highs, preferring to move sideways for much of 2015, thus many stocks also have followed such backing-and-filling patterns.
Inphi (IPHI) 11/6
We've reported on IPHI several times since early October given the three prior pocket pivots its had on the way up. Another pocket pivot was posted on Friday, but we can see that with IPHI it pays to be opportunistic and wait for a low-volume pullback into the 10-day moving average before pulling the trigger. The last couple of years has been a time of buying on constructive weakness, taking profits where you have them in context with the chart, and keeping stops tight.