Cyclical Rotation and Our Stock of the Year – ROKU
After 2 big trades in August on ROKU, secular growth stocks have sold off over the past 2 weeks.
It later broke out of a great earnings flag and gained another 20%+ from there after we pointed it out on our Youtube channel and alert service again.
Since the August ISM services index came in hot and the ten-year treasury yield started to rebound, the secular growers have sold off as money is rotated into the cyclical areas of the market. This finally hit ROKU after it moved 50% higher within several weeks.
We are keeping an eye on ROKU, however. After breaking out of multiple high, tight flags and earnings eruptions patterns, it continues to act well after reaching good technical entry points this year.
In the video below, I talk about the next potential technical entry point for ROKU.
But more cyclical areas of the market have been the place to be the past couple weeks.
MDC broke out of both a bullish inverted J pattern and symmetrical triangle pattern for clients before it surged nearly 20% within a few weeks. Meanwhile, MDB and OKTA never reached our target entry point in our alert service.
Making sure a stock reaches a good technical entry point continues to be a great way to increase our win rate along with avoiding recent IPOs as the IPO market has cooled.
Nearly all of our featured short setups last month never reached our target short entry point except for FLOW which made a nice move in our direction for clients.
Someone asked last week if we would go long those stocks if they start to move in the other direction.
The short answer (no pun intended) is no. We want to trade in the direction of the long-term trend.
Going long on a trade that far below the 200 day moving average generally leads to a lower win rate and sudden trend reversals to the downside. A bad combination when swing trading or trend trading with a tight stop-loss.
However, if the stock has already made it back above the 200 day moving average, reached the short entry point and then rebounded strongly to reach the stop on the short, this would be a busted short pattern within a better long-term trend which helps.
Busted bearish patterns are some of the best opportunities. One of my favorites is a head-and-shoulders that confirms and then quickly moves back above the right shoulder strongly.
In the latest Weekly Alert and swing trading instructional video I talk about this, the next entry on ROKU and how to take advantage of the typical market action ahead of a key Fed rate decision.
In other news, the market delivered a bullish signal a couple weeks ago just before the Russell 2000 surged about 5% higher. However, you should see our full analysis in our latest market analysis video below or in our alert service.