Originally listed as a stock trading watchlist candidate in the August 6 issue of The Wagner Daily newsletter, and currently showing up as a “Pullback” candidate on the MTG Stock Screener, EQIX may now be poised to break out above the high of its 4-day consolidation and rally to a new high. The August 2 pullback to near-term support of its 20-day EMA, combined with the “shakeout” action of August 7, increases the odds of a successful breakout attempt. Volume has also declined and been lighter than average since the July 26 post-earnings breakout. That is bullish during a pullback and subsequent consolidation because it indicates traders are not selling into strength of the preceding breakout. This swing trade setup is illustrated on the daily chart below:
If you have a smallish trading account, don’t be concerned about the relatively high share price of EQIX. The best stocks are usually expensive for good reason. Even though the setup may be listed with small share size, expensive stocks make larger point moves in both directions. By reducing share size of the setup, our capital risk (based on the stop price) is the same as any other setup. As such, one should not view this setup any differently than buying more shares of a cheaper stock.
Many of the stocks presently on our radar screen for pullback or breakout entry are scheduled to report quarterly earnings in the near future. Since we avoid buying in front of earnings reports (akin to gambling), we are holding off on those setups for now, but are maintaining a watchful eye. Furthermore, as mentioned in this blog post from yesterday, there are good reasons why we do not yet have much conviction for short-term trading on the long side. Nevertheless, we will still take a shot at the best setups with a positive reward-risk ratio, albeit with smaller share size and correspondingly lower risk.