Here is a report we sent recently that describes some of our thinking when it comes to anticipating possibilities in individual stocks, in this case, SNAP:
We recently issued a Pocket Pivot Report for Snap (SNAP) as it pushed above its 10-day moving average 10 trading days ago. That pocket pivot also coincided with an Undercut & Rally (U&R) move that was buyable as the stock traded back above the first low labeled #1 at 20.64 after posting the second low in the pattern, #2, at 18.90.
After posting a strong upside move for the following three days after regaining its 10-dma on the U&R move, SNAP peaked out at 24.40 and then staged a normal reaction move or pullback. That pullback created a third low, labeled #3, at 21.33.
Since posting that low, SNAP has moved tight sideways on very light volume. However, volume picked up today as it dipped just below the newly-arrived 20-day exponential moving average (green line). SNAP closed today just six cents below the 20-dema.
SNAP could continue to hold tight along the 20-dema without testing the 21.33 low at #3, above, or it could have three other potential outcomes from here, which we've mapped out below. The first, labeled #1 on the chart below, is that SNAP undercuts the 21.33 low and then turns back to the upside in a U&R type of move. If SNAP rallies from there and clears the most recent peak n the pattern at 24.40, that would create a cup-with-handle type of breakout.
The outcome labeled #2 on the chart below is that SNAP keeps declining and undercuts the 18.90 low (#2 in the chart above) If the rally continues back up through the most recent peak in the pattern at 24.40, that would create a classic double-bottom base breakout.
The third outcome, labeled #3 on the chart, is that SNAP fulfills the bears' fantasies and just keeps declining into oblivion. Now, if one considers all these potential outcomes, what sort of trading plan can one develop around the stock while reacting to the real-time price-volume action? If you are currently long the stock, then this is your homework assignment for tonight.
Keep in mind that how this plays out may have something to do with the general market context. If the market rally continues right away, then the stock may just hold tight here and then go higher, or it could undercut the 21.33 low and then rally, which is outcome #1 in the chart above. If the general market corrects further, something that is certainly not out of the question at the present time, then outcomes #2 and #3 in the chart above may be more likely.
Any of these outcomes is possible. Therefore, giving some thought to how you might react to any of these possibilities beforehand as you map them out on a daily chart is a good exercise and helps to take the emotion out of how you ultimately react to whatever actual situation develops in real-time.