2 Smart Tips to Enter Pullbacks in Parobolic Breakout Stocks

Often with explosive stocks and leveraged sector ETFs like NUGT, pullbacks off parabolic breakouts can be volatile, and difficult to enter.  So just how do we figure out our entry level?

There are two ways to do it.  The safe route is to wait for a confirmation move.  For instance, a positive candle pattern.  The riskier route is to take a stab once the stock becomes oversold.

When choosing the later, it's best to play it safe with a small position size or tight stop.  Today NUGT presented both options.  It pulled back down to $16.50, which got it to oversold levels, before reversing into what now looks like a positive candle pattern.  This pattern is not valid until the close.

While it may seem counter-intuitive to enter near the highs of the day, this pattern is actually the safer route, assuming it holds to the close.

Remember, in swing trading you must have a game plan. Often times the strategic moves you must make go against what our emotions tell us, so that plan must be in place going into the day.

If you would like to learn more about how I trade, receive my nightly focus list with market analysis,setups and trade alerts, sign up for a 14 day free trial at BullsonWallStreet.com.  

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P.S.  We traded NUGT successfully in the Trade Report and have been stocking it since the December bottom formation.

2 Low Risk Real Estate Short Entries

If looking to get short on the current or future bounce, SRS offers two low risk and easily managed entries.

The leveraged real estate ETF is currently right at moving average support. An entry here with a tight stop under the moving average provides low risk If the top is placed at $64 and the target is modestly placed at $75, that would give us a 5:1 reward to risk ratio.

If the market gives us a stronger bounce, the next logical entry level would be at $50, where there is strong price support.

Trade Entry: TRA

I bought 500 shares of TRA at $53.12.

Setup: A combo platter of a breakout and trend-pullback and entering within a forming high and tight flag. I expect a continuation of the trend. Great volume pattern and RSI and stochastics confirm price highs. The stock is under accumulated here.

Risk: My intial target is the recent high at $60. My stop is just under the forming consolidation area.

Concerns: No doubt, the stock (and sector) is overbought. However, momentum and volume are so strong that I'm betting the trend will continue.

PCX: High Risk and High Reward

PCX has been the killer momo play for 2008. The stock has more than tripled, and has been relentless since breaking out in April, going from $50 to $150 in about two months. When I say relentless, I mean relentless. In that span, there was not even one high volume selloff. The few down days the stock did have were on relatively weak volume, which is a bullish signal. At least, until Thursday.

Thursday marked the first high volume down day. Not only was it a down day, but a "rough and imperfect" bearish engulfing candlestick pattern also printed.

Want more bad news? Here it is. The stock ranked 18 out of 7000+ stocks in my properiety scan for extended stocks. I never short based on this scan alone. There need to be other factors. PCX has ranked high on this scan for quite some time, but only now (after the first distributive volume signal) am I thinking of shorting.

Note that shorting a momo stocks is never easy and can be a hair raising experience. I actually don't recommend shorting PCX. Those that do enter short now better be fine with taking a loss.

If I do enter a short position here, I will manage risk closely. A logical stop would be around the recent high in the $162-165 range, with a target at the 50 day moving average, around $100. That would give about a 5:1 reward to risk.

Don't Overpay for POT

Ag related stocks are finally starting to pullback. Those of us who missed the recent run (I raise my hand in shame) are starting to get itchy trigger fingers. Rest assured, I've got my gun set on safety.

Take a look at Potash. Even with the 10 point pullback from all time highs, the stock is 15 points above the 50 day moving average and barely starting to work off overbought stochastics. With the runnup the stock has had, I would expect a more meaningful pullback to some real strong, well defined support areas.

I will buy if the following conditions are met:

1. The stock pulls back to the support zone I've drawn below, in the $220 range.

2. Downside volume stays below the line I've drawn within the volume bars. The idea is that downside volume should be less than previous upside volume. If volume increases on the pullback, that is a sign of distibution.

3. Stochastics near oversold levels, in the 20-40 range.

BEXP: Late Entry Post

I entered BEXP yesterday at the close as it showed that it would help support. This is a late post, so I won't include it if and when I get around to updating my trading results.

APPL Buy Point and Negative Divergence

I am thinking about putting a buy stop in place for AAPL just above $190. As you can see from the chart, that would be the logical breakout entry.

A major concern of mine is the RSI divergence that is developing. Last year I did a study of breakouts accompanied by a negative RSI divergence. My findings surprised me. Contrary to popular opinion, the failure rate was about the same as without the divergence. However, and this is key, the rise is not as high. From where I'd have to place my stop, my reward to risk right now would only be 1.5:1.

I probably won't put in a buy stop since I can't monitor the volume with this type of entry. However, if I do so a volume surge I may jump in.

You guys can probably tell I'm conflicted about this trade setup.

Today's Entry: CSX, DZZ and MTL

I bought 100 shares of MTL at $143.46. The strong broke out over $140 yesterday on strong volume. It's one of the strongest stocks in a strong sector showing loads of accumulation. I may be a bit early on entry (I usually don't enter at overbought stochastic levels), as the stock could pullback to $140. That's why I went with a small position size and may buy more at $140.



I bought 300 shares of CSX at $56.10. Another strong stock from a strong sector at the bottom of a high tight flag pattern.



I bought 500 shares of DZZ at $26.55. This ETF is 2X short gold. Gold has setup nicely as a broken momo that is retracing weekly to resistance levels.

Today's Trade: FWLT

I am short 400 shares of FWLT at $62.

The setup: Broken momentum stock rising up to and stalling at resistance in a loose bear flag. Poor OBV and volume pattern, with stochastics showing an overbought sell signal.

I used a "sell short limit order" to place the trade. This type of order is great for part time traders who can't watch the open. The stock closed yesterday at $61.74. I had decided I would enter on strength, so I placed the short limit order at $62. If I had not done so, I would have entered a little after 9 AM (central time) at $61.43.

Today's Trade: PCLN

I bought 50 shares of PCLN at $121.30. I like the chart, but it was tough finding a good entry. We've got support at old resistance, which is $120. However, many strong breakouts pullback to the bottom of the breakout candle. If that were to happen, the stock could pullback to $110 and still be technically sound as a breakout-pullback.

I decided to take a small position size here, place my stop just under $110.



Side note:
I would love to get in on some more commodity related plays, but the sectors are so overbought it's tough to find an entry. I'm trying to be patient, but it's frustrating watching these stocks blow up without me. This is my first big miss of 2008. I'll have to revisit and see where I went wrong.

Can We Buy CNX's Pullback?

Ronald wants to know if I consider the 3.7% drop in CNX, a stock I highlighted earlier in the week, a buyable pullback.

While I would not buy just yet, the stock is still technically sound. Support has not broke and volume on today's decline was within the stocks normal range. OBV still looks good. Ideally I like to see pullbacks head to support slowly and with small price bars, so I won't buy until I see more evidence that backs the idea that today's decline is nothing to be concerned about.

Another concern for this stock is the negative RSI divergence. This is a sign that momentum is waning. I don't use divergences as a primary tool, but they do go into the overall analysis and let me know that I must exercise caution.

This analysis does not cause me to discard the stock from my watchlist. As long as support holds, it's still a bull candidate. However, it does effect my entry. I enter stocks in one of two ways on pullbacks. When I am supremely confident in a stock, I will enter during the pullback, before a confirmation move like a bullish engulfing or long tail candle at support. My other method, when there are more queston marks, is to wait for confirmation.

Stocks that Should Be on Your Radar

Here are some momo names that should be front and center of your wachlist. I am looking for tradeable entries in:

MTL, POT, HDB, LTRE, RICK, CTRP, DE, CPLA, FSLR, VIP, LDK, MCRS, HMSY, MON, MOS, ISRG, AGU, BIDU, MA, GLDN, RIG, MBT, ATW CF.

Note the abundance of ag related stocks.

EWZ Entry Strategy

One of my favorite buy the dip plays, EWZ (Brazilian ETF), has pulled back to the 50 day moving average. There are two ways I am looking to enter this stock. I'm going to make a very small buy now, right around the support area, with a stop around $59-60. The next buy point is on a breakout of $70, the old high.

It is best to play this very conservatively, since there is a more than small chance that the current bounce could setup a breakdown below support. Therefore, I will only make a small nibble here (around 250 shares). If we get a breakout of $70, that would be a signal that the stock only experienced a natural correction in the midst of a continued bull move. This is the level where I would make bigger position sizing entries.

Trade: RIO and Entry Point Precision

I bought 500 shares of RIO at $44.65. This is a simple "trend pullback" trade. The stock has been on a steady trend that has bounced off of every pullback to the 50 day moving average. I am a bit concerned about the heavy volume on this pullback, so I will use a tight stop at $43.50, which is just under the 50 day moving average. My target is $47, the old highs, which gives me a better than 3:1 reward to risk.

Lately I have been receiving e-mails and comments about precise entry points. While I try to be a bit more precise on breakouts, when it comes to pullbacks I don't worry so much. As long as I've got a good risk reward, I'll enter. For example, yesterday I decided I would enter RIO if it was within a point from the 50 day moving average. This morning when I checked the quote, it was at $44.60, so I decided to enter. Nothing too complicated. No 30 minute charts, candle patterns or fibs.

Sometimes I think we tend to over complicate things. I do have some day trading strategies that are much more precise. However, when swing trading with a goal of 2-10 points, waiting for a few nickels and dimes doesn't amount to much, and can keep you out of good trades.

Thinking Out Loud About Amazon

Like many, I am kicking myself for not entering AMZN yesterday. On Thursday, I featured it as a breakout-pullback candidate. When I made my trades yesterday, I came very close to taking a 500 share position at around $44.40, but decided against it for two reasons. First, I had made my buy entry closer to the the breakout, between $44.00-44.20. Second, the fact that earnings would be reported scared me. Now, I'm sitting here thinking about the $5000 I passed up :(

In all seriousness, I have no problem with passing on the trade pre-earnings. You never know how that will go. However, the fact that I held out because of 20 cents was a bonehead move. As I've noted in the past, I tend not to be very precise with entries. I am a swing trader looking for at least 1-5 point moves, so in the grand scheme of things, 20 cents doesn't mean much.

Now back to AMZN. If we look at the chart history, it looks like a high probability short setup. It's always risky shorting an uptrending breakout, but this stock has not handled extremely overbought RSI levels well. Take note of past overbought RSI levels (70-90) on the chart below. If you were willing to hold on for a little while (at least a month), you would have made a lot of money. Will this trend continue? I may take a small position (no more than 400 shares), at $55, betting that it will. I would not recommend this trade for the faint of heart, and I certainly will set a stop after entering.

I welcome reader thoughts on AMZN. Are you long or short? You can leave a comment or e-mail at SinghJD1@aol.com

Watchlist and Entry Point Question and Answer

FPIC broke out of a three month triangle formation. Volume and the OBV indicator (a measure of volume at the close) show increased accumulation during the formation of the triangle, suggesting this breakout is for real and any pullback will be met with more buying. I will enter on a low volume pullback to $46.


Other stocks on the watchlist:
BWLD: buyoint: $62.64, stop $61.75
DGIT: breakout $17.50, pb $16
FUL: $27-27.50, stop $26.30
OEH: buypoint $54-56,stop $53.25

I've had a few questions about the wide range of some of my buypoints. For example, OEH has a $54-56 range. First, remember that I am swing trading these stocks, not daytrading. I don't require precise entry points. My target for the stock is $62, so even if I enter at $56, my reward-to-risk will be more than 2:1. I like to allow myself some leeway when dealing with momentum stocks that have fallen more than a few points to support, in order to get a good feel for how the stock is acting in this range.

Trade Review: HOC

Before posting my review of the HOC trade, I'd like to answer a question posed to me after the latest "today's trades" post. The question:

You seem to hold on to positions for only a few days even though it may seem as though the position could move higher. why is that?

The person who asked this question is quite perceptive. While I've been on a tear of late, in terms of win rate and profits, I am still frustrated because I know I should be making more money. I have been exiting trades way too early, bagging profits when I probably should stay in a little longer.

The HOC trade is a good example. When I entered the trade, at $57.94, I posted a target of $62. While I didn't say it, that target was only for partial profits. My strategy was to then move my stop up and see if the stock could breakout over new highs, which I think is likely. Using this strategy, if it breaks out, I continue to make money. If it doesn't, that's fine. I break even on the remaining shares and still have my initial profit.

Instead, I was short sighted, looked at the nice looking profit that I would gain on all of the shares, and let greed and fear based emotions get the best of me. Looking at the chart below, you will see that the stochastic level has not given a sell signal. At the least I should have stayed in the trade with half the original position.

Note that I believe I made a mistake, even if the stock tanks tomorrow. It's about doing the right thing, not stroking the ego from one trade. If I trade properly, over time what should happen will happen more frequently than not.

Setup:
Low volume pullback to support of a trending stock in a hot sector. Early entry. The safe play would have been to enter on a confirmation move a day later. However, the stock was acting perfectly and a low risk stop was in place, making for a nice reward to risk ratio.

Results:
Entered at $57.94
Exit at $60.76
$1410 gain (+4.9%)
Hold time 2 days

Final Analysis:
Great entry off of a great setup. However, I should have stuck to the plan and taken partial, rather than full, profits. This would have given me the chance to catch a big move. The fact that volume was acting nicely and stochastics are not oversold make the timing of the exit awful. I should have held on longer.

What to Work On:
A. Sticking with the plan at entry
B. Psychological aspects of profit taking.
C. Exits: partial vs full profits.
D. Exits: pay attention to stochastic indicator

What to Continue:
A. The "low volume pullback to support of momentum stocks" setup
B. Early entries on good setups with good reward to risk

Patience, Trading and Profitability

I stumbled across this article on patience and trading via Trader Mike's links. Although it may seem like basic stuff, it speaks about an issue that has been one of the toughest for me to master. The basic message is you must be patient with your entry points and give your positions time to work for you.

I know it sounds like a basic principle. However, it's been a tough one for me to master. I can't count the number of times I've spent all evening researching my watchlist and identifying the perfect entry points, only to jump the gun the next morning and enter before my entry point is hit. Inevitably, the stock will end up reaching the entry point I originally identified, take time to get to my buypoint, and take even more time inching higher.

There's likely a very good reason that I identified a certain entry point, most likely a pullback to breakout level or a trendline tag of support. By succumbing to my emotions, I've ignored logical analysis, lowered my rewark to risk ratio, and actually created a longer and more frustrating hold time. If I would have just waited for the buypoint, I'd actually already have a nice profit by the time the stock moves back up to my original buy point. If the stock went the other way, I would end up with a smaller loss.

A good trader must also exercise patience once in a position. I've wrote about this before, about how important it is to let your positions work for you. Just as with entry points, there is a logical reason for setting your stop just below support levels. By "micro-managing" your trades, we usually end up losing out on big gains.

One way I combat the urge to micro-manage is by taking partial profits as they come. It keeps me in the game if there is a big move, locks in a small profit and feeds my basic emotional needs.

I know it's tough to be patient, but by gettting a handle on my entry points and allowing my positions to work for me, I've become much more profitable.

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