{"id":4566,"date":"2016-07-20T09:30:51","date_gmt":"2016-07-20T13:30:51","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4566"},"modified":"2022-04-06T15:05:01","modified_gmt":"2022-04-06T19:05:01","slug":"buy-pullback-50-ma","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/","title":{"rendered":"How To Buy A Breakout Stock On Pullback To 50-MA After Big Gap Up"},"content":{"rendered":"<figure id=\"attachment_4569\" aria-describedby=\"caption-attachment-4569\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-4569 size-medium\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2016\/07\/big-gains-300x183.jpg\" width=\"300\" height=\"183\" alt=\"\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/07\/big-gains-300x183.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2016\/07\/big-gains-110x67.jpg 110w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-4569\" class=\"wp-caption-text\">Wait for the pullback, then the moonshot may soon follow<\/figcaption><\/figure>\n<p>Several months ago, our trading system\u00a0enabled us to buy\u00a0a strong\u00a0breakout\u00a0stock\u00a0when it pulled back\u00a0to its 50-day moving average, which we subsequently\u00a0sold into a rally for an <strong>average gain of 26.8%<\/strong>&#8230;and I&#8217;m going to show you exactly how we did it.<\/p>\n<p>In this article, we walk you through that trade to show the technical rationale for buying shares of Fabrinet ($FN) when we did, as well as the timing and\u00a0methodology\u00a0for taking profits into strength of the monster advance that followed.<\/p>\n<p>Relax, grab a drink and your notebook, then\u00a0continue reading to learn how this trading strategy can be applied to <em>your<\/em>\u00a0next breakout stock.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/#The_Setup\" >The Setup<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/#The_Entry\" >The Entry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/#_The_20_Gain\" >\u00a0The 20% Gain<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/#The_29_Gain\" >The 29% Gain<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/buy-pullback-50-ma\/#The_Takeaway\" >The Takeaway<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"The_Setup\"><\/span><strong>The Setup<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>NOTE: The commentary in <em>italics<\/em>\u00a0and first two charts below\u00a0originally appeared for subscribers in\u00a0the March 15\u00a0issue of <em><a href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">The Wagner Daily<\/a><\/em>:<\/p>\n<p><em>We have one new setup on today&#8217;s watchlist in $FN, which cleared an 18-month long trading range late last year.<\/em><\/p>\n<p><em>$FN monthly\u00a0chart:<\/em><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/charts\/2014\/160315FN2.png\" alt=\"$FN1 \" title=\"\"><\/p>\n<p><em>Six weeks ago, $FN gapped above $23, breaking out from a three-month long base on big volume. <\/em><\/p>\n<p><em>[Next, let&#8217;s zoom into the shorter-term WEEKLY\u00a0chart below:]<\/em><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/charts\/2014\/160315FN.png\" alt=\"$FN2 \" title=\"\"><\/p>\n<p><em>Last week&#8217;s reversal bar off the rising [<a href=\"https:\/\/www.yahoo.com\/news\/10-Week-Moving-Average-Is-A-ibd-412693430.html\" target=\"_blank\" rel=\"noopener\">similar<\/a> to 50-day moving average] on a pick up in volume was a bullish sign.<\/em><\/p>\n<p><em>We are placing a buy limit order, looking for an entry on very short-term weakness [pullback to 10-day\u00a0moving average on daily chart].<\/em><\/p>\n<p><em>The stop is placed below last week&#8217;s reversal candle, minus some wiggle room (not much though).<\/em><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_Entry\"><\/span><strong>The Entry<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Our exact buy limit price listed in the <a href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">newsletter<\/a> on March 15 was $27.40, and the following annotated chart\u00a0shows\u00a0our pullback entry into Fabrinet stock that same day.<\/p>\n<p>Also of importance on the chart below, note the strong rally that occurred on March 11, just three days after $FN bounced off key support of its 50-day moving average (teal line).<\/p>\n<p>Increasing\u00a0volume confirmed\u00a0that day&#8217;s 5.3% advance as well.<\/p>\n<p>Such price action is bullish, and is indicative of <strong>how healthy stocks should act<\/strong> after retracing to\u00a0their 50-day moving averages.<\/p>\n<p>Take a look on the daily chart:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/charts\/2014\/160719FN1.png\" alt=\"$FN entry on daily \" title=\"\"><\/p>\n<p>Notice how the\u00a0March 15 buy entry was on a pullback of the March 11 rally, which neatly aligned with horizontal price support from the low of the big &#8220;gap up&#8221; in early February (pink horizontal line).<\/p>\n<p>We expected this pivotal area of support in the $27 to $27.50 area to hold up, which provided us with a <strong>low-risk buy entry<\/strong> on the pullback.<\/p>\n<p>But even if that level of support failed, we knew that major support of the 50-day moving average was hanging out\u00a0below (around $26.40), and we were prepared to patiently hold the position if that occurred.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"_The_20_Gain\"><\/span><strong>\u00a0The 20% Gain<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The $27.40 entry worked out well, as $FN worked its way higher over the next two weeks, highlighted by a 13% advance in three sessions from <span class=\"__postbox-detected-content __postbox-detected-date\">March 24<\/span> to <span class=\"__postbox-detected-content __postbox-detected-date\">March 29.<\/span><\/p>\n<p>By\u00a0the close of March 29, the price had extended far above the 20-day exponential moving average\u00a0<em>and<\/em> was <strong>20% above our entry price.<\/strong><\/p>\n<p>To lock in some profits\u00a0in case of a pullback,\u00a0we alerted subscribers that we were selling 1\/4 of the position on the next day&#8217;s open.<\/p>\n<p>This is shown on the daily chart below:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/charts\/2014\/160719FN2.png\" alt=\"$FN entry on daily \" title=\"\"><\/p>\n<p>For short-term swing traders, selling the <em>full<\/em> <span class=\"__postbox-detected-content __postbox-detected-date\">position for a 20% gain that day (March 30) would have been fine as well.<\/span><\/p>\n<p>However, in stocks with strong earnings and revenue growth (like $FN), we do <em>not<\/em> mind holding at least half a position in anticipation of larger gains.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_29_Gain\"><\/span><strong>The 29% Gain<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Over the next few weeks, $FN consolidated while holding short-term support of its 20-day exponential moving average.<\/p>\n<p>This bullish price action gave us a large enough profit buffer to be comfortable holding the remaining 3\/4 position size through the next quarterly earnings report.<\/p>\n<p>After reporting earnings on May 2, $FN jumped 14% higher to close near $36.<\/p>\n<p>But this time, we placed a tight protective stop at $35.36 to lock in gains on the rest of the shares, rather than sitting through a potential pullback.<\/p>\n<p>The\u00a0stop triggered the following day, enabling us to<strong> score a sweet\u00a029% gain<\/strong> on the final 3\/4 position (26.8% average gain on the entire trade).<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/charts\/2014\/160719FN3.png\" alt=\"$FN entry on daily \" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_Takeaway\"><\/span><strong>The Takeaway<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>When a stock with strong earnings and revenue growth gaps sharply higher (as $FN did in early February), waiting for the price to consolidate and meet or pullback to the 50-day moving average provides an ideal buy entry point to catch the next rally higher.<\/p>\n<p>Patience to <strong>wait for the proper timing<\/strong> is crucial; make\u00a0the stock\u00a0come to you, rather than chasing it.<\/p>\n<p>Then, tighten your stops to lock in gains when the stock subsequently catches fire again.<\/p>\n<p>Of course, always have a predetermined initial stop in place, just in case the price action fails to follow through as planned.<\/p>\n<p>Also, in case you are wondering why $FN made\u00a0our watchlist in the first place, check out <a href=\"https:\/\/www.morpheustrading.com\/blog\/best-stock-breakouts\/\" target=\"_blank\" rel=\"noopener\">this<\/a>\u00a0excellent mini-lesson\u00a0that explains how to find the best stocks to buy <em>before<\/em> they breakout.<\/p>\n<p>Finally,\u00a0<a href=\"https:\/\/www.morpheustrading.com\/blog\/top-5-qualities-stock-breakouts\/\" target=\"_blank\" rel=\"noopener\"><em>Top 5 Qualities Of The Best Stock Breakouts<\/em><\/a> is a fantastic\u00a0educational article that clearly explains how we find\u00a0profitable swing trade setups in our daily\u00a0stock pick service.<\/p>\n<p><em>If you enjoyed this article, please click the button on left to share with your favorite social media network. Feel free to also drop us a comment below.<\/em><\/p>\n<div class=\"cfmonitor\" style=\"padding-top: 30px;\"><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content - Large --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 336px; height: 280px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"6017996961\"><\/ins><script>\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Several months ago, our trading system\u00a0enabled us to buy\u00a0a strong\u00a0breakout\u00a0stock\u00a0when it pulled back\u00a0to its 50-day moving average, which we subsequently\u00a0sold into a rally for an average gain of 26.8%&#8230;and I&#8217;m going to show you exactly how we did it. In this article, we walk you through that trade to show the technical rationale for buying [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-4566","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4566","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=4566"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4566\/revisions"}],"predecessor-version":[{"id":11254,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4566\/revisions\/11254"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=4566"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=4566"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=4566"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}