Breakout trades are having a tough time finding traction right now.
As I said in the Dec. 20 Watchlist Update, instead of seeing the kinds of follow-through moves we would normally expect, breakout stocks are getting sold off before they’re able to gain any real traction.
The stocks are sound, and the setups look good. But it seems to me that institutions are selling into strength.
On Wednesday, the Nasdaq Composite fell by 3.3%…
And declining stocks outpaced advancing stocks by better than four-to-one.
Periods like this happen.
It’s all part of being a trader.
But, heads up! During conditions like these…
Most long trades are simply not going to work out.
Think Outside the Box
That’s why I’ve been preaching the idea that investors should control risk by reducing exposure and looking for tight setups.
Yesterday, I even wrote about a potential short idea on a particularly weak market sector.
I’m also entertaining less traditional setups.
Here’s one I bought yesterday – Victoria’s Secret & Co. (VSCO).
VSCO is a recent initial public offering (IPO) that started trading in August of 2021.
The stock had support near the first trading day low at $48, which was breached in late December during a shakeout move.
My initial focus is always the same – risk.
Is this a setup where I can risk very little to potentially make a lot?
The green and red lines on the chart above show my entry and stop levels. My total risk is just 5% on the trade.
But as you’ll notice, the setup is a bit different than what I usually focus on.
These shakeouts generally trigger a lot of stops and are often caused by institutional manipulation when they are building a position.
The stock then gapped up to the $52 area on huge volume and has not even entertained filling that gap – a good sign of strength and follow-through buying.
Wednesday’s market selloff pulled shares back into a buyable area where I got long at $57.93.
I have a stop just beneath the pivot low at $54.60 – again, risking only about 5% on the trade.
Lastly, while this isn’t one of our Watchlist stocks right now, if you’d like a step-by-step walkthrough on how to best take advantage of trades like these…
Be sure to check out my recent article, How to Follow My Weekly Trades, to know where I’m buying so that you can follow along.
Embrace the surge,
Editor, Stock Surge Daily