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Aug 01

Five For Friday – Entering Long $DNKN, $GMCR, $HPQ, $NUE, $SNTS

If you’ve been following this blog for a while you’ll know we follow trends. We don’t call tops. In fact when we see every new high that is instantly called as the top when it reverses just slightly, we take pleasure in knowing it’s highly unlikely to be the case. In such circumstances we often find new opportunities all at once. Like now.

We’ve seen some volatility in our names as we navigate earnings season, with the only hits so far coming in $CTG and $SBH. We also had a disappointment in $NFLX, although we’re still up 6% on it and holding because it never invalidated, and an exit signal in $V for a 14.6% gain.

All told, considering we’ve been carrying over 30 names that’s pretty impressive, because most everything else that has reported has continued to run strongly. If you stick with leaders in uptrends it should be no surprise to see them continue their course. There are plenty of uptrends out there, and there are plenty more setting up entries right now. Here are five of them that we’ll enter at Friday’s open:-

 

Dunkin’ Brands ($DNKN)

$DNKN has pretty much continued in an uptrend since the day it was listed. You can see from the chart it can be a little streaky but it’s always pointing in the right direction. The price action of the last week has caught the eye and is giving us a great entry here. This is what I like to see – an overall uptrend, a consolidation or pullback from a recent high, and something special – an emotional high-volume spike lower (earnings) taking out the 50-day without invalidating the overall uptrend. That last one is very important, it didn’t take out the previous pivot. And look what followed, a huge reversal higher, a tight consolidation above the 20EMA, and a resumption higher today. Buy. We can use last week’s closing low as our stop, that’s clearly the line in the sand, and it’s less than 8% away.

AlphaCapture

 

Green Mountain Coffee ($GMCR)

We already took a huge 50% bite out of the Green Machine earlier this year and it’s set up again for us. It bobbed around below the 20 and 50MA’s shortly after our exit, and it’s only this week that it’s finally managed to reclaim ground above the MA’s, closing at the highest level since the 6/19 high. I also think we don’t need to be as generous with the stop this time and a break that closes below the 7/16 close of $72.01 would be enough to confirm the resumption higher has failed, and it may be tracing out a more complex pattern. It reports 8/7.

AlphaCapture

 

Hewlett-Packard ($HPQ)

I always respect the views of great money managers like Jim Chanos, who just happens to be short $HPQ. Whenever you hear someone like that talk about an idea it’s always insightful to see and hear their process. I’m guessing his case is that $HPQ is in the business of printers and PC’s and that area is in decline, something like that. It sounds very logical. I believe it too and respect his views. Trouble is, I respect price more. Price is telling me a different story. Technically this should be a familiar setup for you now, stock in long-term uptrend, recent high, pullback/consolidation, resumption. We’ll use a combination of that ascending trendline and a close below the 7/19 close of $25.14 to confirm we’re wrong. I’m not sure what Jim’s using to confirm when he’s wrong.

AlphaCapture

 

Nucor Corp ($NUE)

The materials sector hasn’t been great but this is one name that’s giving us a great risk-reward entry here. It’s choppy, but that’s a strong trend overall, the ascending trendline is actually of weekly closing lows, and it’s coincided beautifully with the 200-day MA this year. Price is breaking out of the consolidation triangle and with today’s open and close above the 5/21 close we have our buy signal. Despite being above all its MA’s and the presence of that trendline, I’m going to give it a bit more room with a stop down at $43.13, because if we’re going to be taken out I want to be absolutely sure we’re wrong. Here’s why – look at the next chart of the last 5 years.

AlphaCapture

That’s the context of the potential upside we’re looking at. A close above $50 brings a lot of blue sky into view.

AlphaCapture

 

Santarus ($SNTS)

This is an easy one. Your kids could tell you this is an uptrend, all you need to know is when to get in and where to place the stop. That’s most of what I do when I look at these potential setups, you can sit there waiting for days, sometimes weeks, before it finally gives you the risk/reward that makes it an attractive proposition. $SNTS is doing that now. We had an interesting wobble and recovery on 7/25 that brought it front and center on the watchlist again, and it’s since taken another brief visit near those lows before again recovering nicely this week. Today’s close was the highest in two weeks suggesting short-term this weakness is over and it’s ready to resume higher. Bear in mind it reports earnings next week too. I’m going to be generous with the stop as a result and use a close below $22.28 initially, which can be moved up fairly quickly to $23 and higher if we see new highs.

AlphaCapture

 

 

 

 

6 comments

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  1. alesveselka

    Jon, what do you consider as good risk-reward-ratio (RRR)? You can see what the RRR is only from hindsight, and often entering on new highs, its hard to estimate where can price go. The smaller distance from entry level to stop loss level the better, I’m sure, but again, this can be different with stock at 100, at with stock at 20 …

    1. Jon Boorman

      Traditionally I’ve always wanted 2:1 or 3:1 in trades but as a trend follower with no upside targets as you say that becomes subjective. That’s why many of my trades are coming out of consolidations, I know that if it were to resume its previous path to new highs it can typically move by a degree that makes 2 or 3:1 viable, and although stops are always placed at previous pivots rather than fixed dollar or percent amounts, they are typically around 5-10% away.

  2. kevin

    Following your trade and initiated positions in GMCR, SNTS, HPQ! Good luck to us

    1. kevin

      Loving the 12% move on SNTS post earnings today! Hope GMCR goes the same way!

  3. Ajay

    Hi Jon,

    Couple of questions:

    – What makes you exit a position?
    – How do you cut your losses if your position goes against you?

    Thanks
    Ajay

    1. Jon Boorman

      Read my post on When To Exit A Trade http://wp.me/p36O36-4d

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