Here’s a recipe for profits from The Chef’s Warehouse (CHEF) (September 17, 2018)
CHEF
I want to look at Chef’s Warehouse ( NASDAQ: CHEF ) today because this is like the only stock that did anything good today; so let’s look at why and what we are going to do.
I have been buying this stock for a while (these little circles are my notes), ever since it broke out of this volatility squeeze right there. Frankly, I could have gotten in a little bit earlier but I didn’t, I missed it, I wasn’t really looking at it.
The reason I am showing this is because this would actually be, if we were going to do kind of a post mortem on this, this would be the time to start buying the stock. Though, if you just look at the chart there is actually nothing remarkable about it that would have drawn you to this so you would have actually had to already be looking at Chef’s ( NASDAQ: CHEF ) on your screen to see this. Meanwhile, the stock has been doing kind of a little volatility squeeze dance here. And then finally the stock starts breaking out and boom, you start buying the stock.
Now we have a weak day like today. You are buying it here and then finally you’ve got last week where the stock looks like it has just got to start rolling over sometime soon. But then if you track this in a little different way you will see a different story; and that is, looking at the intraday lows. Not the close or anything but the intraday lows. This was a lower low on the 5th; it’s the 17th now. This is the last time we have seen a lower low; the next day, of course, not the last day, we have seen a lower close but I am not looking at that now.
The intraday lows mark the maximum power of sellers, that’s it. The maximum power of the sellers. The sellers did not have enough supply to push the stock down one more penny than on this day, $29.00. So this is where the buyers started coming in. They overwhelmed the sellers and then as each day goes by, now it is up to 29.50; now it’s up to 29.70; now it’s up to 30.70; here up 31.80. So remember, back here when this thing started it was at $29.00, now you’ve got 31.80, that’s about a 10 percent move in just a few days, on higher intraday lows and the stock just keeps moving.
So this is what I am looking at here: I see this stock as still, believe it or not, as a Phase 1 volatility squeeze. I don’t know how high this is going and I am not enthusiastic about this stock, though, I did buy more today. The reason is because the stock is really strong on a very weak day. And if they are supposed to be selling it and they are not, there is a reason for that; it is not because they forgot.
So I am looking at this as a stock that still is in Phase 1. Volume is actually increasing. Is this going to be a blow off top? I don’t know but I will tell you this: I was looking for an excuse; I was looking for a reason to sell this stock today because everything else looked like crap. I let go of some Amazon ( NASDAQ: AMZN ) stuff and other stocks that I had. Now suddenly the biggest position in my account, and there are only a few different stocks in there this is just one of them, and the reason is because it is working.
If your stock is working don’t sell just because the market is weak. Don’t sell just because other things that make you uneasy are happening. You should look at a stock like this and say, “Okay, let’s look at things that are working. Well, this is one of them. So you know what? I’m good. Let me solve some problems here. Let me go figure some other stuff out.” And you just leave this thing alone.
So my suggestion to you on this is, first of all, if you are long, good job, stay long. Don’t be selling right now because this is a stock that is making you money. But DO start looking at these intraday lows that I have just described. So today the intraday low is 34.05 so frankly, where you should, if you are going to trade in this way, you really want to have your stop right around here. If you are buying now you should be able to withstand over 6 percent of a pullback. That is kind of a nasty pullback if you are going to do it this way.
If you are a day trader you don’t want to do that but it only trades 300 thousand shares here so it is not super liquid. If you look at the minute chart you can see that there are several minutes in a row where the stock doesn’t trade at all so this is a very risky stock. What I am doing is, I am trying to give you a way to be in this stock with some kind of risk management. Only when the stock prints a new INTRADAY low will you be able to rationally look at this stock and say, “Something has changed and I think this initial move is over.”
So you want to give these stocks as much room to move as you can without risking giving up all your profits. What you will find is, a lot of times, stocks that you are giving room to move will move a lot further than you think they will. I would stay long. It is very risky and problematic to start a new position now. You could do it but you don’t want to give it a 6 or an 8 percent stop loss you want to give it a much shorter one because the stock is already up so much. Again, I think it is risky to start a new position. But if you are long, frankly, I think it is risky to sell right now because all signals are go.
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