Cheesy Trading Plans for Kraft

• Posted by Greg Harmon
• on February 4th, 2015

The market recently has been bouncing around in a wide range. Well the indexes have at least. But under the covers there have been many stocks breaking out. In this type of market you need to look at two possible entry points at times. Yes, there are those that will not buy strength in this kind of market. Only stocks that show strength holding at support and reversing. That is fine, but they run the risk of missing a big move. Costco ($COST) was one of those stock on my list this week. My notes from Saturday say it is a buy on clearing 146. It did that Tuesday and did not give much back Wednesday. It sits up 6.3% from the buy trigger as I write this. A big missed opportunity if you were waiting for it to pullback and hold at support at 137.

Another I found and marked as a pullback buy candidate is heading down the same path. Kraft ($KRFT), I had marked as a buy on a pullback to 64. It was trending lower in a bull flag but had the RSI holding up well. Monday came and it did move lower. Under the 20 day SMA for the first time in two weeks. But it never touched 64, so no trigger. The thing is though it gives off another buy signal if it were to break above 67.40.

This is hard for some to understand. Why would I be willing to buy it at 64 and at 67.40 but not in between? It comes down to reward versus risk. As it shows strength at 64 and reverses there is a natural stop to buy against. As it moves away from that level the downside risk that it returns there grows bigger to where it is commensurate with the upside reward to the next resistance level at 67.40. But when it gets over that 67.40 level there is a new stop to trade against as it clears resistance. Each one risks a different amount of price so the sizing should be different.

This is not the only way to trade this. Some would be comfortable when it reversed Monday buying Tuesday on an upward price move, using Monday’s low as a stop. That is fine too. There are infinite methods of trading. Find one that suits your risk tolerance and stick with it.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through January 2015 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus