It's Not Always About the Breakouts

We often discuss looking for signs of actual buyers when a stock pulls back before assuming any type of bottom is in place. While a bull run may essentially bail out dip-buyers time and time again, it is still useful to keep this discipline in mind, especially considering the carnage even in this market in the retail and energy sectors over the last few quarters, for example, where dip-buyers have mostly not been bailed out and instead have been pummeled. 

Note how this analysis stands in contrast to the bread-and-butter breakout setups, sporting clean charts. 

In this blog post, we will focus on the signs during a pullback for a potential long entry. 

Using the enterprise software pay, CDK, as an example on its daily timeframe, below, observe the recent spurts in buy volume bars (bottom pane). Indeed, buyers seem to be presenting themselves in a meaningful way to defend the 200-day simple moving average (yellow line). Any longs will want to place a stop-loss not far below that reference point. 

Also note that price is moving in unison now with the increased buy volume, holding the 200-day and trying to emerge from a potential base bottom. 

While CDK is far from healed (we want to see it at least back over its 50-day m.a. and eventually over $66), some actual signs are in place for a dip-buy in lieu of simply pointing at the chart and declaring it is at "support" because we say so, or because it is vaguely "oversold."

More on this as well as the biotech/healthcare rotation for Members in my usual Midday Video.