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business newsFor Traders Only: Stocks to Watch for Long Side Setups
By
Quint Tatro
Mar 24, 2011 2:45 pm
Why Amazon, Baidu, Check Point Software, and VeriSign are included on the list.
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For the past several weeks I have been preparing for a substantial flush that has never transpired. Each dip has been met with buyers underneath, keeping this tape in suspended animation. While further gains are also not forthcoming, it is only a matter of time before we have resolution either up or down.
To that end, I have prepared two watch lists from which I will have an arsenal of opportunities no matter the outcome. I want to share a few of my long side setups, and run traders through my thought process for their inclusion on the list.
Click to enlarge
Since September 2010, Amazon (AMZN) has embarked on two very big moves. While volatility in recent months has been a bit much for such a large cap name, Amazon does appear like it is tracing a tradeable bottom at these levels. A real quick caveat: Rarely do I bottom-fish and try to catch a stock below its 50-day moving average. A basic rule of thumb is to stay on the proper side of this key moving average for keeping the odds in your favor.
Amazon caught my eye as an exception to this rule for two reasons. Take note that whenever Amazon separates by such a vast margin from its moving average, it bounces back to the mean through time or price movement. Secondly, Amazon is trying to form a rounded bottom right here, with support at the $160.50 level. With a stop just below this level, traders would have an excellent risk-reward trade even in the event Amazon merely traded back toward its descending trend line.
So right here, right now, what is the trade in Amazon? I would not initiate a full risk position on a long trade here merely for the fact that the overall averages are still under pressure and the tight stop that is needed on Amazon. With a stop below current lows around $160.50, I would wait for a slight pullback in Amazon to the $164 and change level. Assuming the market is still ripping higher, I would then initiate a half position at that level.
Click to enlarge
Baidu (BIDU) caught my eye for a completely different reason than did Amazon. Whereas Amazon is shaping a potential bottom, Baidu is notching all-time highs. This move to new heights is indicative of leadership should we break out of the recent consolidation in the averages. Baidu is too extended for a buy right here so I will be watching it for any pullback below $130.00. If it romps higher without a pause, then I would move on to other opportunities.
The $115.00 level has provided significant support in the last six months, and I would allow Baidu the room to fluctuate within these parameters. As such, share count will be substantially lower than taking a name with a tight stop. I base my reads purely on the charts, but am also cognizant that China’s economy has been on a tear for years now, and any “miss” may be reason for traders to cut high momo names like Baidu from their portfolio, and ask questions later.
Click to enlarge
Check Point Software (CHKP) falls into the more traditional category of what I look for in a budding opportunity. Since July 2009, Check Point has been in a clearly defined uptrend. On several occasions during this run, Check Point has had buying support around the rising 50-day moving average, propelling it to new highs each time.
Check Point is once again bouncing off of support and appears ready to resume its uptrend. Depending on your level of risk tolerance, placing a stop right below the 50-day MA ($47.90) or below recent lows at $47.11 would be reasonable. Check Point has traded closely in line with the major indexes as of late, so traders will want to see confirmation amongst them.
Click to enlarge
A final setup I really like is the one in VeriSign (VRSN). VeriSign has also found some solid support at a rising 50-day, and the recent consolidation from February 14 highs bodes well for the potential of another leg higher. Recent prices are filling the gap back in mid-December, which may be of significance to some traders. Volume has not spiked during the recent base, making this pause all the more attractive.
VeriSign is very similar to Check Point in the nature of the setup. Traders may want to consider buying half a position at these levels with a stop below recent lows at $34.60. A break of the $35.90 area would be a prudent place to add the final half.
The main reason I am suggesting partial positions to traders right now is that it is my belief that we are still at a crossroads. While we have seen a sell-off and subsequent bounce, it remains to be seen in which direction the next leg will lead us. Whether we retest recent lows or roar ahead to new highs is not as important as monitoring and accepting risk with each and every trade. By taking a partial share count, it allows traders to participate without getting nicked to death by a whippy tape. Once a sustained trend is back on tap, taking full positions will be easier if you have not endured multiple wounds from getting stopped out of numerous full risk positions during the chop.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
To that end, I have prepared two watch lists from which I will have an arsenal of opportunities no matter the outcome. I want to share a few of my long side setups, and run traders through my thought process for their inclusion on the list.
Click to enlarge
Since September 2010, Amazon (AMZN) has embarked on two very big moves. While volatility in recent months has been a bit much for such a large cap name, Amazon does appear like it is tracing a tradeable bottom at these levels. A real quick caveat: Rarely do I bottom-fish and try to catch a stock below its 50-day moving average. A basic rule of thumb is to stay on the proper side of this key moving average for keeping the odds in your favor.
Amazon caught my eye as an exception to this rule for two reasons. Take note that whenever Amazon separates by such a vast margin from its moving average, it bounces back to the mean through time or price movement. Secondly, Amazon is trying to form a rounded bottom right here, with support at the $160.50 level. With a stop just below this level, traders would have an excellent risk-reward trade even in the event Amazon merely traded back toward its descending trend line.
So right here, right now, what is the trade in Amazon? I would not initiate a full risk position on a long trade here merely for the fact that the overall averages are still under pressure and the tight stop that is needed on Amazon. With a stop below current lows around $160.50, I would wait for a slight pullback in Amazon to the $164 and change level. Assuming the market is still ripping higher, I would then initiate a half position at that level.
Click to enlarge
Baidu (BIDU) caught my eye for a completely different reason than did Amazon. Whereas Amazon is shaping a potential bottom, Baidu is notching all-time highs. This move to new heights is indicative of leadership should we break out of the recent consolidation in the averages. Baidu is too extended for a buy right here so I will be watching it for any pullback below $130.00. If it romps higher without a pause, then I would move on to other opportunities.
The $115.00 level has provided significant support in the last six months, and I would allow Baidu the room to fluctuate within these parameters. As such, share count will be substantially lower than taking a name with a tight stop. I base my reads purely on the charts, but am also cognizant that China’s economy has been on a tear for years now, and any “miss” may be reason for traders to cut high momo names like Baidu from their portfolio, and ask questions later.
Click to enlarge
Check Point Software (CHKP) falls into the more traditional category of what I look for in a budding opportunity. Since July 2009, Check Point has been in a clearly defined uptrend. On several occasions during this run, Check Point has had buying support around the rising 50-day moving average, propelling it to new highs each time.
Check Point is once again bouncing off of support and appears ready to resume its uptrend. Depending on your level of risk tolerance, placing a stop right below the 50-day MA ($47.90) or below recent lows at $47.11 would be reasonable. Check Point has traded closely in line with the major indexes as of late, so traders will want to see confirmation amongst them.
Click to enlarge
A final setup I really like is the one in VeriSign (VRSN). VeriSign has also found some solid support at a rising 50-day, and the recent consolidation from February 14 highs bodes well for the potential of another leg higher. Recent prices are filling the gap back in mid-December, which may be of significance to some traders. Volume has not spiked during the recent base, making this pause all the more attractive.
VeriSign is very similar to Check Point in the nature of the setup. Traders may want to consider buying half a position at these levels with a stop below recent lows at $34.60. A break of the $35.90 area would be a prudent place to add the final half.
The main reason I am suggesting partial positions to traders right now is that it is my belief that we are still at a crossroads. While we have seen a sell-off and subsequent bounce, it remains to be seen in which direction the next leg will lead us. Whether we retest recent lows or roar ahead to new highs is not as important as monitoring and accepting risk with each and every trade. By taking a partial share count, it allows traders to participate without getting nicked to death by a whippy tape. Once a sustained trend is back on tap, taking full positions will be easier if you have not endured multiple wounds from getting stopped out of numerous full risk positions during the chop.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
Position in VRSN
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