The Absolute Best Entry Points for Stocks
Over the years, we’ve found that studying nothing more than charts can help traders break away from the herd-like pack and spot moves before they actually happen.
While homework on fundamentals is essential, it’s a terrible idea to pull the trigger on any trade without first looking at the chart. Stock ABC may seem fundamentally strong after further review, but if the chart shows resistance at current prices, and a higher likelihood of failure, you need to be aware of that.
Part of looking at charts is being able to spot areas of support and resistance, or the floors and ceilings. When any trader buys a stock, they’re betting that stock in question will move higher. Or, if a trader shorts a stock, they’re betting the stock in question will move lower. You have a better chance of calling for a potential pivot in a specific direction if you pay attention to technical analysis.
Sorry, but as strong as fundamental analysis is, it’ll ever tell you exactly when to buy or sell. It’ll simply show you what's under the hood - not how it works.
Sometimes finding a bottom after a steep decline, or spotting tops can be incredibly lucrative. In 2016, shares of UPS were stampeding higher on holding shopping momentum. Unfortunately for those that weren’t paying attention, the stock became aggressively overbought and ready to decline as it has done for the last four years. This year was no different.
Let’s start with the downside opportunity in December 2016.
First, if we look at the history of the stock, it has a tendency to pull back at the start of the New Year as holiday momentum died off. That also happened in 2014, 2015, 2016 and 2017. Two, notice just how overbought the stock became when we address momentum indicators.
When Relative Strength (RSI) for instance runs above 70, the stock has an historical tendency to pull back. When MACD pushes towards two and confirms RSI, the stock pulls back. And when Money Flow (MFI) pushes towards 80 and confirms RSI and MACD, the stock pulls back. History and momentum proved to be profitable.
It was the perfect storm to go short UPS.
But wait, the trade isn’t over. There was a second opportunity once the selling pressure disappeared. After a monster gap down on earnings, the stock found and held support at $105 a share, which has held up nicely since July 2016.
Now look at RSI, MACD and MFI again. Now, RSI is below its 30-line. It’s telling us the stock is oversold. That’s confirmed by an incredible move south on MACD, as well as MFI, which dipped to its 20-line.
Again, while fundamental analysis has led to riches, ignoring the technical pivot points can cost you just about everything.