Time to fly a kite? Here are some thoughts on KITE. (February 10, 2015)
I’m looking at Kite Pharma ( NASDAQ:KITE ). This is a stock that I was looking at last month, still look at it, and thought, and still think that it’s going to be higher by the end of the year. It’s in a really good sector and the trend is strong, just a lot of good things going for it. I want to walk you through this because on January 8th was when this was trading at $70.00.
Lets say we’re bullish on Kite ( NASDAQ:KITE ) and the idea is this, you’re buying this stock but you’ve got to have a stop somewhere. Yippee-ki-yay, that’s great. Now, I see the stock is extended; it’s far extended above the 50-day moving average. Look at the slope of the 50. Now look at the trajectory of the prices; they’re matching it, drawing the 50 up, that’s fine and then they start to accelerate away.
Well that’s not just going to keep going to infinity, but you see it’s dragging the 50-day moving average up with it. So the acceleration is occurring and when an uptrend accelerates, by definition it’s because buyers are getting more aggressive. It’s not like, “Oh, there’s more buyers than sellers.” No there aren’t, they’re always the same; every share that’s traded, somebody bought it, somebody sold it, it’s always the same. It’s the relative aggressiveness that counts.
Anyway, so you buy this stock at around 70.00, now it’s up at 80.00, what’s your trade? Are you in it for the long haul or the short-term? Well let’s say you have a risk set at $70.00, if the stock falls below $70.00 I don’t want to play anymore. So it keeps going, now maybe you’re raising the stock, maybe you’re still sticking it at 70.00; it’s up even more. Wow! This is really big. Okay, well crap, that’s a bummer.
The stock had been in a big trajectory higher and then you saw a big huge pullback here, like a really nasty pullback. This tells you, and by the way you’re not stopped out yet, I don’t even have to look at the news it doesn’t matter, this tells you, high volume massive dumpage, that’s institutional selling. Now the stock had been, back here in late in 2014, clear down at 22.00, so it’s up almost 300 percent. So you’ve got to figure these big firms that had been long the stock for a while, they’re happy to sell, they don’t even care if the stock dumps that much, they’re out of there, they’re liquidating.
Well when that happens the support for the stock is just gone. You’re not going to see somebody, after this kind of move, unless it was from a rumor or something, you’re not going to see this kind of move just suddenly magically reverse the other way; it just doesn’t happen, not a big move like this. So here you know that trade is over, it’s going lower. The next day golly gee it doesn’t, but ultimately it goes lower. So this was actually your first tell and it was more like a yell because it was so, so obvious. Oversold bounce, I can’t predict that stuff, nobody really can.
What I’m showing you is, that once this move is over, this is done. But what is it that’s done? The uptrend still works it’s just that this acceleration isn’t working. Oh, now the stock is back at the 20-day moving average where it was bouncing before so I want to buy then. No, you don’t. Right now there’s no reason to buy because you see the stock is still going down.
Also, when the stock was hitting the 20 here, when it was hitting it back here, and certainly here, that trend, look at the 50-day moving average it was pretty much on par with that. But after the acceleration this kind of blew through resistance. So this is different, this is a pullback that needs to pullback some more; you don’t just want to buy it. So then what happens? You still don’t want to buy it, you still don’t want to buy it, it’s still under distribution. Looking at that when was that? That was last week, now it’s getting interesting.
This is where it was today. What I’ve done here, you know it’s easy to take a walk down memory lane and say woulda, coulda, shoulda, but what I’m saying is, this was a big massive sell-off. The stock had to work it’s way down to a point to where you could make a case technically for buying it. I will make that case right now.
The only thing I would suggest is that you make sure that you keep a stop just underneath this level, because this has been a big move; you’re likely to see this in consolidation now for a while as opposed to just rocketing up in to a resumption of the uptrend. This is a good buy point on a stock of a good company that got strong prospects right at the 50-day moving average. So you’re tactic is, you go ahead and buy this big pullback you just don’t give it a whole lot of room. Don’t keep it on a long leash and you’re going to be fine here.
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