As pressure mounts in the trade talks with China, some stocks are clearly nervous, but others are demonstrating a desire to go higher.
Yesterday I gave you a simple, short-term trading tactic to identify these bullish stocks.
Today’s trade ideas a classic buy pattern and yesterday’s powerful tactic.
One of the best indicators of major institutional support is the 200-day moving average. It’s even stronger if the average is sloped up.
You should never blindly trust that the average will provide support for a falling stock, but when a stock reacts to it, you can trade it.
A strong bounce off of the 200-day average can lead to a quick short-term trade and a great long-term entry.
Foot Locker (FL) looks like it could provide both of these trades.
As you can see from the chart below, yesterday FL bounced off of its 200-day average on the biggest volume it’s had in two months.
Furthermore, it traded above the high of the last 2 days.
This is very bullish action considering the market closed down on the day.
This pattern sets up a trade stop under the 200-day average. I’d use under $53.
Normally, I’d suggest waiting for confirmation of it trading over yesterday’s high of $56.48 before entering, but in this case if it pulls back to the $54.50-$55.00 range that should be good support, and would offer a lower cost entry.
Therefore, for the short-term trade, look to enter around $55 with a target at $59 and a stop under $53.
If you’re looking for a bigger trade, then your entry zone is $54.50 – $57.00 and you’re playing for a move back up to $65 and beyond.
FL may be able to weather short-term pull backs in the market, but I would not expect it to hold up in a significant market decline so be sure to adhere to your stops.
If the current market pullback leads to a continuation of the market’s uptrend, this will be a great entry.
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation