Thini this selloff is on borrowed time? Check out this trading strategy on LendingTree (TREE). (April 30, 2018)
TREE
I want to look at LendingTree ( NASDAQ: TREE ); here’s why: This stock just continues to move lower; let’s just say the market hasn’t been particularly good to them after they missed on earnings last week. I don’t want you to look at this as just a magnet and just keep trying to buy the stock and buy the stock and just buy it on the way down and catch the dip; it is not really that kind of stock at least for me.
What I am looking at is this; this is three standard deviations on these Bollinger Bands. The stock is not supposed to close outside those standard deviations; mathematically it is just not supposed to happen. We got this close on Thursday and then again on Friday below this third standard deviation. Now, today, this stock actually closed almost another 3 percent lower but it closed inside the lower Bollinger Bands. So this is a lower absolute or price low, a nominal low, whatever, it is just a lower close but it is a higher close with respect to statistical analysis.
One way to trade it is, the intraday low is 237.30, right? So the idea would be if the stock starts trading below 237.30 then, okay this support didn’t hold. If, on the other hand, the stock starts trading ABOVE today’s open, which is 244.05, then you can look at this and make a pretty good determination that all this selling pressure has run its course. What we really need to see is, you need to see an open box like this. Where the stock is up and the close is higher than the open. That tells you that this high volume four-day period of selling off has finally run its course and this would be the new support level.
Here is how I would do that trade: I bought some at the open or close to the open and then got out for a small loss; I just didn’t like the way the stock was going. If I had held it, probably into tomorrow or maybe Wednesday, it would probably have been a winning trade. But I just decided to take a different approach and that is, close out of it, wait until the end of the day and then take a small position in the stock; with the idea that ultimately I am going to see this type of a move, so I take a small position in the stock now. If the stock starts trading above today’s opening price then I will probably take a little bit more. And then if it starts trading above 250.00, then I will be more confident in being able to buy the stock because the selling would be pretty much over.
At the same time though, as I am buying more stock I am raising the stop on the shares that I have already bought so that I am able to increase my position size without increasing the risk. That is a HUGE concept for you “knife buyers” to be using. You have got to have stops that are in place on stock that you have already bought. Because if you don’t you are going to wind up losing money and I don’t want to see you do that.
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