Here are three interesting price action case studies to help you understand price action concepts:
Pepsi: Classic Buy Low Sell High Candidate
The picture speaks for itself. Pepsi stock has traded in a tight band between 130 and 148 over the last 10 months. It means anybody who bought it at lows of 130 could have made 12% + dividends on the stock. Now, this can be exciting returns who pursue a low-risk low return model but there is nothing much for a growth investor in the stock.
Growth investors or Price Action enthusiasts look for an inflection point, the place where the stock decisively changes trend. If the stock price move is business as usual, then there is nothing to be excited about. I am in no way arguing against people who love to buy stocks like Pepsi and hold for a long time to make decent returns through dividends. Even at this price, the dividend yield is 2.8%. It’s just that it does not suit our style.
Netflix – Trading to go nowhere
The streaming war is getting intense with consolidation happening among players which means lower pricing power for all the payers and higher spend on the content to retain customers. No wonder Netflix investors realizing that and despite strong earnings last year, the stock has stalled and trading in a price band between 460 and 580.
When a stock trades like this, it tells the market participants that it’s worried about the future. An enthusiastic believer can buy Netflix near 460 hoping it will bounce to 580 with stop loss below 440. That will be a 20% upside trade. But one will be better off staying away from Netflix for now.
Intel – Turning around or dead stock?
Intel as a company and Intel as a stock has been struggling for a long time. But with chip shortages and Intel committing itself for chip production even for third parties and ready to make big investments, it is the stock that is turning around and one can see on the chart. Having said that, Intel was a down and out stock at 45 but with value-oriented stocks (beaten-down large-cap stocks) making a comeback, Intel stock rallied from $45 all the way to $67.
Price Action Turnaround: When Intel stock rallied from $45 all the way to $67, it climbed past 200 dma. When it first broke past 200 dma in Jan, there was a gap-up which it filled and rallied. Now on declines, it has bounced back with intensity from the same support.
There looks like an investment case and with Intel doing lots of fundamental things to turn around, it looks like a good stock to buy (not for growth or momentum investors) for people who are looking to invest and wait for some time. If Intel for whatever reason declines below $51, then one should just sell and move on. It can accelerate downside move to sub $45 levels.
The news that can help Intel stay on the course of turnaround:
A group of U.S. senators are on the verge of unleashing a $52-billion proposal to drive the U.S. semiconductor chip production and research over five years to tackle the growing Chinese semiconductor production and crisis impacting the automakers and other U.S. industries
One update: Booked Profit in Pfizer and added Intel
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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