When you are trading, you look for momentum opportunities where the stocks make fast and furious moves which usually happens in small-cap and midcap names. Hence, you tend to ignore slow and steady Ultra large-cap movers. I am doing this study just to understand what we missed and how we can avoid such situations in the future.
Apple: Bounce from 200 dma
Apple stock rallied with all other stock between Nov and the end of Jan 2021. It rallied from 110 to 145. It was not a technical move but just a broader stock market move. Then, growth stocks peaked, yields started climbing and hence Apple stock saw a steep correction with the other tech stocks. It came down to sub 120 levels just above 200 day moving average. The big question back then in April-May 2021: Should one buy Apple considering yields are rising? My view back then: Apple stock will languish and I was so wrong 🙁
Apple stock exhibited its intent of holding 200-day moving average dma during May and hence it took off in June. Looking back it was such a great opportunity to buy at 125 and now the stock has made a new lifetime high with analysts now putting out a target of 175. A buy at $125 around the end of May means the trade is up 17.5% in just 1.5 months. The trade once again proves you can never go wrong with Apple.
The real Opportunity: Moderna MRNA
Lots of times we don’t want to believe what the market wants us to believe. I evaluated Moderna trade but gave it a pass thinking there is a huge news risk associated with the stock.
Moderna MRNA stock broke out to a new high above 187 in early June and even pulled back to sub 200 levels by mid-June. It looked so good purely on Price Action and now a month later, the stock is up 40% What a trade it turned out to be.
Many of you must be wondering why document these trades when they have already moved. There are two objectives:
- Teach you how price action works through Case Studies
- How these concepts can be used to scan future opportunities
Lots of times we know and the opportunity is there at your face but we avoid it because our brain plays weird games.
How can you buy Amazon when Jeff Bezos plans to go to space, what if something bad happens?
There is a picture-perfect breakout that has happened in Amazon stock. Amazon stock has broken out to a new high above 3500 after a period of one year.
Amazon for over a year traded in a 600 point band between 2900 and 3500 and hence a breakout above 3500 sets the stock for 4100. It means if you buy the stock at the current market price of 3581, it can lead to an upside of 14%. If you put a stop loss below 3400 i.e. downside risk of 5.5%. Does this sound exciting? It can be for options traders but this is not the kind of trade a momentum trader does.
It’s not like I have not recommended Large Cap trades. AMD at 75 is a classic example. The trade is up 15% since the middle of May, again not something traders get excited about.
Everybody is different. The market also goes through different phases. One should always study markets because it not only opens your mind but makes one flexible on how to approach trading. As a price2action.com family member, the learning never stops. We are in this business for the long haul.
Lots of you write me an email…hey I want to invest in a good large-cap business and ok with waiting. Now, for such people, I have been recommending Intel
Intel has been trying to turn around fundamentally by changing the business model itself. It wants to manufacture chips for others, expand capacity, and working hard to fix legacy manufacturing problems. The market seems excited. Here’s what it has done in 2021. It opened with a huge Gap up in Jan 2021 above 200 dma. It pulled back took support at 200 dma and rallied to $68. It was a 25% move. The stock then on the back of some adverse news has come down to 200 dma and since the middle of May holding it. Will it break down or rally again? I don’t know.
How should one invest? One can buy at the current market price of 56 with a stop loss below 52 hoping that 200 dma will hold. If the stock breaks down and falls below 52, then exit and move on. That’s how price action works. You assume and then watch.
Let me know if this makes sense to you.
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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