Hey everyone,
After I shared my analysis of potential market bottom in October 2022, with hindsight we can now be sure that the bottom was indeed identified correctly.
We had some great bullish moves since then but met with intermittent big chunk of corrections couple of time this year. Following such recent correction, we had a follow through day last week and the market, as per IBD analysis, is in confirmed uptrend. This means investors can gradually increase their exposure to the market and look for good set ups, breakouts in stocks that has good fundamentals.
I personally like to look for earnings winners, Stage 2 breakouts and pullback buys.
$ROKU had a big move post their earnings. But since then, along with the market correction, it has given back most of it. Currently it has pulled back to its 10wk MA and finding support so far. If this holds, it is likely to resume the stage 2 uptrend. I bought at this current pullback. Let's see if it works out.
As per stage analysis, if it price close below 30wk MA, then the bullish thesis is void and hence would be used as stop loss level. Sometime, people use 200d MA or 40wk MA as stop loss instead. In the chart above Lilac line is 10wk MA and dark blue line is 40wk MA.
One such trade that was closed successfully was $LW for 50% profit, with initial 13% Stop loss. This gave a 3.79x R as reward.
Entry was at the green arrow when the price broke into stage 2 uptrend and exited when the big red (bearish) candle cut through the 10wk MA and 30wk MA (not shown in chart). The trade was held for 13 months.
Stage Analysis gives a broader long term view cancelling all the day to day noise which allows investors to sit and let the trade work for longer as long the bullish thesis holds.
This isn't a perfect system of course. No system is perfect. Not all breakouts work. That is why there is stop loss to protect the account from bigger losses.
In the next post, I will share another stock which has just entered Stage 2 with a breakout that also displays the other stages very clearly in a picture perfect manner with its historical bull and bear phase in the preceeding few years.
Happy Learning and Successful Investing.
Disclaimer: This material is intended for educational purposes only, and is not recommendations to buy or sell any financial instruments or products. Do your own due diligence and make your own decision. The value of your investments can rise as well as fall. Capital is at risk when investing in any financial products. You could get back less than you invested. Past performance may not be indicative of future results.