What Would George Costanza Do?
Based on its strong fundamentals and price action
over the last few months, Garmin Ltd
(
GRMN |
Quote |
Chart |
News |
PowerRating) can be considered a leading
stock. It has been featured regularly in the
Intermediate Term Traders Report. After breaking out in early December, it
gained about 33% over the next month before it began a consolidation starting
the first week in January. Yesterday it broke out of that consolidation on
strong volume. Due to this, it made appearances last night on both the “New
60-Day Highs on Double Volume†list, and the “Top
RS/EPS New Highs†list. This leading intermediate term stock has set up in
some interesting short-term patterns over the last two days.
The short-term trader looking
to play this pattern would have looked to enter today just above yesterday’s
high of $33.30. This morning the stock gapped up the $33.31, so the short-term
trader could have taken the trade on the open or waited for the pullback and
then taken it on the move back through the trigger around 9:45 am.Â
As traders of all time frames
are aware, buying breakouts has been a dangerous business, lately. Garmin’s
solid fundamentals do help to place the odds in your favor, though. There would
have been a maximum of a little over $0.70 in this trade today. A good daytrader
with solid money management techniques would likely have netted between $0.30
and $0.40 on this trade. An OK trade, but you won’t retire on it.
A formation that looks just as
interesting is the one that today’s bar on the daily chart sets up. It is a
potential short trigger. Japanese Candlestick followers will see it as a star,
and the possible second bar of a three-bar evening star formation. Either way, a
move tomorrow below today’s low would be a bearish signal.
The current market has been
very hard on breakouts. Failures have led to big moves lower. When leading
stocks have collapsed, it has created some extremely sharp downside moves. In a
strong bull market, to consider taking a short-term reversal trigger in a
leading stock would be foolish. We are not in a strong bull market. “Seinfeld”
fans may remember the episode where George decides he is going to do the
opposite of what he would normally do. I call this an “Opposite George†trade,
because it goes against my normal inclination to buy breakouts. In a bad market,
this kind of “Opposite George†trade has the potential of landing you the
equivalent of a job with the New York Yankees.
Any short-term trader
considering a trade in this stock should note that the high of the previous
consolidation is at $33.07. This is very close by, and could prove as support
for the stock. A move below this could be a big move, but make sure to lock in
partial profits. Profit taking is especially important in a counter-trend trade
like this one.
Intermediate-term traders who
took the breakout yesterday or have been holding Garmin for a while could
consider the possibility of using this short-term reversal pattern to take
partial profits, or possibly exit the trade (at least temporarily). In future
articles I will discuss some of the things I take into consideration with an
intermediate term position when deciding whether to act upon a short-term
signal. For now, I would suggest that you at least learn to recognize these
patterns and understand that your stock could be in trouble, if they trigger.
Best of luck with your trading.
 Feel free to email me with any questions.
Rob Hanna
Â