When the market pulls back there’s a simple technical pattern for finding trades that are likely to trend nicely when the market resumes its uptrend.
This pattern is even more powerful when there is also a good fundamental story behind it.
Today’s trade idea has both, and a tight risk level.
Acadia Pharmaceuticals (ACAD) announced good earnings on February 26th and the stock shot higher. This is enough of a good fundamental backdrop to look for a bullish price pattern to enter a trade.
The recent sell-off in the market has now provided the technical conditions that help identify the next bullish up trends.
The pattern to look for is one in which the market sells off, and the individual stock holds at good support.
In this case, ACAD is sitting on its 10-day moving average, and it closed higher in a weak day in the market on Friday.
One day doesn’t make a trend, but if it heads higher on Monday it will look like a nice low-risk flag to buy.
The trade set up is a buy over $26 with a stop under the low of the flag which is Friday’s $24.72 low. Even better would be to put the stop under $24.50.
Keep in mind that the market has not turned back up yet, so this trade may be premature if the market heads lower.
Be patient in a down market, but now you’re prepared if the market rallies.
Rick Nartarian, Chief Investment Officer
The American Investor Daily