Look At Lower Timeframes–Here’s Why
The market action still looks constructive for longs. Be
ready for a real pullback. It’ll happen someday. Not today, though.
It was pointed out to me by a few readers that some of the
breakouts I showed in last Wednesday’s column didn’t come from good-looking
bases with proper handles. This is true. The point was not to show ideal
setups, but rather to show how explosive breakouts were becoming. Also, just
because a Cup, or other pattern doesn’t have a proper handle, doesn’t mean it
isn’t buyable. Let’s look again at SYXI to see one way in which this trade
could have been played.
As you can see on the daily chart below, SYXI formed a cup
on the daily chart. Between 5/23 and 5/25 SYXI began to put in a handle, but
never finished it. On 5/26, the stock broke out and barely looked back since.
When I want to purchase a stock whose base has not put in a
proper handle on the daily chart, many times I will look at a lower time frame
to see if there is a reasonable support level I could put a stop near. Below is
a 30 min-chart of SYXI leading up to, and just after the breakout. As you can
see, support had clearly formed around $11.40 to $11.50 as that level was
touched 4 times in 3 days.
Rather than using the bottom of the base as your stop when
no handle is obvious, look at a lower time frame, and you may be able to find a
tighter support level that would help you contain your risk a little better.
Best of luck with your trading,
Rob