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Discussed in this article: Westlake Chemical Corp. ( $WLK )
I’m going to go through some of the IBD 50 stocks that are particularly interesting; some of which are really good buy points, others you just really want to stay away from, so let’s just go through this.
Westlake Chemical ( $WLK Westlake Chemical Corporation ), and by the way on these IBD stocks, just so you know, in case you don’t subscribe to IBD, they’re basically algorithmic formulaic type of things that combine fundamentals and technicals and they really focus on growth rates, on expanding growth rates, earnings per share, stuff like that. So from a fundamental stand point they’re generally high growth stuff, you aren’t going to find any value here, they’re all high growth stock, which means that when the market deems them not growing just as fast then they’re going to start selling off, so these are the types of things that you’ve got to trade very technically, you also have to be aware of the extent of the uptrend, in other words, how mature is it, and typically on IBD 50 stocks your going to find stocks with mature uptrends, it takes them a while to get on IBD and some of these uptrends can last a lot longer and run a lot farther than you think they can, but that means it’s even more important for you to be trading these technically and make really good low risk entries.
So that gets us to Westlake Chemical ( $WLK Westlake Chemical Corporation ) here. Now, this has been in a uptrend for a while, but it hasn’t exactly been smooth. You like to see them just bounce off the 50-day moving average as it trends nicely. Here, that’s not the case, so this has had a heck of a pull back, like a 20 percent pull back, but as far as the 200-day moving average goes, it bounced here on the way down, came up, now it’s a steeper decline so that could be a little problematic, but Friday we got a really nice rebound.
So here’s your trade, as long as this stock stays above Thursday’s intraday low of $76.71 then this is a stock you can take to the long side. So what you want to do, really is, I wouldn’t put a stop at $76.70, give it a little wiggle room, but you want to keep a fairly tight stop on this and that gives you a lower risk entry. If you’re stopped out then you’re not going to be losing that much money and also one other thing, you don’t want to be going all in all out, think about it. If you’ve got a stop at $76.50, we’ll use mental math and say it’s at $82.50, well that’s a six point change, that’s a six point stop, so if you’ve got a hundred shares you can lose $600.00; so you’ve got to keep that in mind.
What you want to do on stocks like these is start with a small position from what you would normally want, like a full position, whatever that is dollar wise, start with say 25 maybe 30 percent and then as the stock moves in your favor, and that can be in five minutes or five days, but as the stock starts moving in your favor and you feel like I’m right about this trade that’s when you go ahead and add to the position so anyway I think Westlake ( $WLK Westlake Chemical Corporation ) works here.
Avis ( $CAR Avis Budget Group Inc ), this has been in a nice consolidation, this is really what you want, you want to see the stock in a nice uptrend, trending sideways allowing the 50-day day moving average enough time to catch up and then wait for the stock to break, well not wait, you can be buying the stock right now, I think, but your anticipation is that the stock’s going to continue upward. This is not chasing the stock if you buy it here, you want to keep a stop, again, start with a small position because this could trickle sideways for another couple weeks or it could start firing off on Monday. But you start with a small position and then as the stock starts rewarding you, you add to it.
Now Hertz ( $HTZ Hertz Global Holdings, Inc ) is in a different situation, this stock hasn’t really been consolidating, it kind of has a little bit actually, if you zoom out a little bit you can see it’s been oscillating, but it’s basically been moving sideways, but the support level is the 20-day moving average, that defines this, so almost by definition you’re chasing the stock if you’re buying it now because it’s not close to the 50-day moving average, here it’s a little bit better off.
CarMax ( $KMX CarMax, Inc ) was the next one. So CarMax ( $KMX CarMax, Inc ), similarly nice uptrend, a pullback to the 50-day moving average, this works. Now you’d almost think that this was a blow-off top, where the stock just really rallied up, well above this trend line but then it’s fallen back, okay that’s the end of the trend. Well not really because the stock has bounced off the fifty, which has been pretty nice in the past so this is one that I think is going to work just fine too.
Valeant Pharmaceuticals ( $VRX Valeant Pharmaceuticals Intl Inc ). I don’t know anything about this company, by the way, it’s just an IBD stock as I look at this, and I have a tough time buying one of these stocks that’s up almost four percent in a day. You look at the weekly chart though and you can see this is just kind of a nice uptrending stock. What my suggestion would be is to stand aside on this a little bit, hopefully we get a little bit of a weakness, even if it comes back a couple of dollars or maybe just drifts sideways for several days, maybe another week, then it’s a lower risk entry point.