A different type of post today. I don’t plan to post about every trade I make but I will be doing a “new position” post every so often. Doing this is a way for me to share the thought I put into a trading decision. This is NOT financial advice it is me simply sharing how I make a trade. Some of the trading jargon may be confusing, I plan to do a detailed explanation on exactly what I look for when making a trade, later on.
The new position is a NYSE stock, Centuri Holding (CTRI) and it is a buy position.
Reasons for the trade:
The stock has broken out vs the S&P 500 (SPX), not a clear horizontal breakout, but it has broken out of a gentle declining resistance line with a strong candle so that is positive.
Price breakout vs Swiss France (CHF) with a strong looking weekly candle, the CHF is a stronger currency than USD right now so I always judge a stock based on the CHF.
Decent evidence of a momentum break against the weekly 30-period moving average. Gives me confidence the stock is likely to breakout into a new trend. It’s hard to breakout from a horizontal trend into an upwards trend without a shift in momentum.
Short-term momentum has not risen to absurd levels during the breakout, so it is unlikely that there would be short term profit taking pressure to potentially bring the stock’s price down. To explain this a bit further, if the momentum had spiked to a crazy level a lot of the holders would suddenly see a spike in profit which would make it more likely for them to sell.
Evidence of a volume spike, that tells me big hands see value in the stock. The bigger players don’t tend to trade on the short term, but they can manipulate the market with short term moves as well, so care has to be taken. The volume has settled after that daily spike without the stock plummeting back down so that gives me an extra bit of confidence.
It has broken out of a solid base when you look at the VRVP with little to no resistance, this means that nearly every buyer will be in profit and will be optimistic that the stock will continue to rise a bit more. There is also no evidence of heavy selling pressure at the breakout (yet) either. This is the type of sentiment I want to be buying into.
Reasons the trade may fail:
- Volume spike is only noticeable on daily chart and not the weekly chart.
- Stock has not made a proper breakout vs SPX, so we don’t have the clear evidence that the market is favouring CTRI, especially for the long term.
- Momentum change of the past 2 weeks is quite big which could result in selling pressure from the bigger hands although the momentum has not stretched to an absurd level for this stock, therefore I think it is unlikely to be an issue.
On a confidence level of 0-100% the evidence is giving me around 75% confidence in this stock, the long-term underperformance vs the stock market being the major drawdown for me. That being said the evidence is still suggesting to me that the stock is likely to enter a new upward trend and that is why I am taking a position.
I’m a bit late to the party with this one, but I can still squeeze out a rough 2.20 risk to reward without being too unrealistic with my target. I base my target on the potential moving average direction and how far the stock is likely to stretch from the moving average. The max this stock has gone on the 3-day moving average is 22% but since it looks likely to break into a new trend from a big base I don’t think I am being too optimistic by aiming for a 30% stretch from the 3-day 30 period moving average.
Entry is at $26.40 with a rough target of $32.00 and a stop of $23.30 if the stock goes my way I will gradually add to the position (dollar cost up) if I see more positive evidence.
Have a great day!
Disclaimer: The analysis and commentary found on this website is for educational and entertainment purposes only and does not constitute financial advice. Always Do Your Own Research and assess risk independently before making any trading or investment decision.