Thinking it’s too late to buy Splunk (SPLK)? Here’s your trade. (August 28, 2018)
SPLK
I want to look at Splunk ( NASDAQ: SPLK ) here. This is a stock that we put on our Growth Stock List last week; it’s doing really well and so I am coming back to this for you. I had had an alert set here at 110.00 to kind of bring me back to the stock so that worked out well.
As I looked at measuring this move, where the stock moved up, nice earnings that went all the way up like 15 percent to almost 17 points and then it pulls back. It is not that tight of a volatility squeeze but it was trading in a sideways range and then, Boom! It’s just a typical volatility compression analysis that I do; a breakout and a move higher, closing almost to the high of the day, that is phase one.
Now we are waiting to see how far the stock goes before it pulls back to profit taking. Oh, we didn’t have to wait very far, a little bit of profit taking here. So upward momentum is stalled, we did get over probably twice-average volume on this day where the stock pulled back. It did not completely reverse; it couldn’t have felt good to the guy that bought right at the top but it didn’t even fall back 2 percent so all in all a victory.
So then the way you look at this now is, is the stock going to break out to a new high or not? I don’t care as much whether the stock moves above this level here. If it moves above this high on the second day you could say, “Oh that’s the time I’m going to buy that stock then.” Well, you could do that but the issue is you still have all this pain from the folks who bought up at the high, probably some of them would like to get their money back. So there is some resistance here that this stock has to chew through.
So in my view anyway, the better entry would be when the stock actually breaks out above this level, not here. So how does that work now? Your real entry on the stock was actually up here at about 126.52 so if you really want to look at it, frankly, you’re not that late in buying now. Now, this is a pretty volatile stock, the thing is up about 20 percent in three trading days, that’s kind of a big deal. But the way the stock trades it could go a lot higher.
What you want to do is start with a small position because if the stock does just rocket then that small position becomes a pretty big one pretty quick; that’s a good thing. On the other hand, if the stock rolls over at least you know what your loss containment is and you should have a stop, I would say, right underneath 120.00 and that gives you about a 5 percent risk on the trade. That is how I would trade Splunk ( NASDAQ: SPLK ) and my price target on this would be about $140.00.
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