Last Friday’s highlighted stock (ZS) shot higher as the market sold off. And when the market started to recover in the afternoon, ZS continued even higher.
By the end of the day on Friday, ZS was up 7%.
The trading tactic behind my picking ZS is one I’ve been focusing your attention on for several days.
Here’s a slightly different angle on the same powerful trading tactic.
As the market continues its wild gyrations from the uncertainty of trade talks, there will continue to be situations like ZS to profit from. These situations will provide good day trades and entries for swing traders and options trades.
However, be careful. The market is in a dangerous mood which could result in even larger declines than we’ve seen so far.
The “situations” I’m referring to are those where a stock demonstrates good relative strength in a weak market, and has a bullish daily pattern.
Sometimes these setups are good for buying weakness, and other times you’re best waiting for the breakout that leads to the resumption of the bullish trend.
Today’s trade idea is a buy on weakness trade.
While the market has been selling off, SunPower Corp. (SPWR) has been consolidating. This is the bullish daily pattern we’re looking for.
Then on Friday, SPWR closed up 11%. This move was fueled by an earnings report that had both good and bad news.
The result was a very strong breakout of a month-long consolidation.
Now the big picture is that the low of the consolidation is a good stop for a swing trade. The stop of under $7 is under the consolidation and the 50-day moving average.
Since the market is weak, the trade idea is to let SPWR pull back to support rather than chase it higher. This may result in never getting a chance to buy it, but ther are always other opportunities.
The support to look for an entry is around $7.80. The buy zone is $7.50-$7.80.
If it is trading under $7.50 it’s weaker than I’m expecting it will get, and therefore, I would not initiate a new position under $7.50 without reevaluating the situation.
In summary, look to buy weakness into the $7.80 level with a stop under $7.
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation