This squeeze play is still in Phase 1. Check out O’Reilly Automotive (ORLY) (February 15, 2019)
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Let’s talk about O’Reilly Automotive ( NASDAQ: ORLY ). What brought that up for me? Well, because I had a blowout yesterday, I had to change my tire and I wished there was somebody from O’Reilly ( NASDAQ: ORLY ) there who could help me do it. Instead, I am doing it on my own (I made most of that up but not all of it).
So here’s the deal, I want to look at volatility squeezes. This stock had been trading in a fairly tight range; you can see how it kind of just trades in this way. It has been trading this way kind of off and on for years, I don’t know exactly why. But this last time when it was squeezing like this you never got the breakout. This is a good lesson because a lot of people new to trading, new to technical analysis, when they see a volatility squeeze they know a little bit about it, they almost feel like they are entitled to make money. Because they see the squeeze they are going to buy and then when the stock breaks out they are going to make a whole gang of money, right? But then the stock doesn’t always break out and sometimes you know what? It craps out.
That’s what you see here. Maybe one-third of all breakouts, according to John Bollinger anyway, about one-third of all breakouts fail, two-thirds tend to continue here. This time we didn’t even see the breakout the stock just kind of petered out a little bit and there was really no trade. Now we are here and we see the stock doing the same thing only this time instead of continuing to fall it breaks out here. That’s really the initial buy signal, a little bit above average volume but not that much to speak of.
That was the initial entry, right here at 355.00 and then you kind of start a trailing stop. You say, “If the stock is back down right at the 50-day moving average,” just because it happens to be right in the middle of the Bollinger Band complex here, “but if it comes back to the 50, you know what? I don’t want to be long the stock because I see what happened here and then you sit around watching your money, do nothing for 2 months. I don’t want to be long this stock if it falls back here so this is where I will put my stop.” And then lo and behold you don’t get stopped out. “Oh my gosh. Well, It’s a good thing I put my stop there instead of there.” And then the stock continues to just kind of trickle higher.
So this is all just Phase 1 stuff. The squeeze and then Phase 1 is the initial breakout. Phase 2 is the little correction, the little pullback, the little rest and then Phase 3 is the continuation. We are still actually in Phase 1; you had a big move here on Tuesday and then this continues to go into Thursday and then Friday we are up again. You can’t buy this stock right now; there is no way you want to buy this stock. But if you caught this initial move, this is one we have been covering.
If you caught this initial move my suggestion, frankly is, with the market the way it is, with this stock the way it is it’s time for you to start really protecting your profits. I would set a stop on maybe a quarter of my position fairly tight, right down here. Because then if you get stopped out, okay, well, at least you sold some but you still have three quarters to go. And then you can trade fractionally, based on what the stock is doing.
The whole point of this is that trading is like golf; the best golfer misses a lot. The best round in the world has never been shot and that is 18. You hit a hole in one on every single hole, every other time that the ball does not get in the hole that’s a miss. You are kind of moving in the right direction but it’s a miss. Trading is that way; it is a series of misses. And if are trying to always get the hole in one, always sell right at the top, always buy right at the bottom, I am telling you, you are going to be duffer, you are never going to get any good at this stuff.
You have to learn to just trade for par. You protect your profits on the way up. You take a little you never tolerate big losses. In other words, you never put it in the pond or in the sand or in the woods. You stay on the fairway and you are ultimately going to wind up okay. So you protect your profits here with O’Reilly ( NASDAQ: ORLY ) but definitely take some.
One that is kind of similar here, it is just kind of getting going, it is one of our Growth Stocks and that is Tandem Diabetes ( NASDAQ: TNDM ). It is a little bit earlier in the move than O’Reilly ( NASDAQ: ORLY ). O’Reilly ( NASDAQ: ORLY ) got the same back here. So you can follow Tandem ( NASDAQ: TNDM ) as well.
Just remember, in this market right now it is kind of an “iffy” market because the S&P, the Dow, the Nasdaq are right around the 200-day moving average where everybody is kind of waiting for it to fall. Everybody is watching it and it is not falling. There is a lot of uncertainty right now and leads me to believe that stocks like this are going to have a hard time continuing to move much higher, hence my suggestion to be taking some profits and protecting your positions.
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