Here’s your trade on General Mills ($GIS). (March 21, 2019)
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Let’s look at General Mills ( NYSE: GIS ). The reason that I am showing you General Mills ( NYSE: GIS ) is because first of all, a big headline today, they reported earnings. Their Blue Buffalo dog food, a good dog food, everybody is eating it and look what happens. They attributed their big growth, General Mills ( NYSE: GIS ) put up a big number, they attributed it to their acquisition of Blue Buffalo. Well, guess what? That’s the dog food that just keeps on giving. It is not in a refresh cycle like an Apple iPhone or a Mac or a car or anything else. These darn dogs are hungry all the time. And so as that gets more popular so is this stock. Here’s what I am looking at, I’m looking at volume here, big volume yesterday. But check this out, this was kind of like a fakeout.
I am seeing a few of these in this market because the market has gone up so much. And listen to me because I am giving you pearls, this is important, the market has gone up so much that right now you are kind of seeing, not really a battle but there are two opposing forces. There are the folks that see this kind of move, and we are just looking at General Mills ( NYSE: GIS ) up 30 percent, it’s a stinking food company. Come on man, 30 percent, that’s a big move in a short period of time. So these defensive names don’t typically move like that. So you get a jump like this and there is going to be a lot of selling into that strength, like, okay great, we’re out. Now let’s look for something else.
So there is always that contingent of traders after a move like this; you have to be looking out for that. But at the same time there is somebody on the other side of the trade and this has not been a parabolic move. This kind of thing is different than that; this is not that. So you can’t really look at this as a climax high, it would be more a question of, okay, this is called a tombstone doji or I guess you could say an upside down hammer or a triple wombat with a forked tail or a flying hibachi actually. So you could look at this and say, they were selling into that so I am not going to buy it, it’s going to go back down here and that’s all. But on the other hand, you have to keep watching it because, hey, it’s that kind of market, people are buying stuff. Then we look the next day and this has totally made this irrelevant. We will go to a 2-day chart and now this just looks strong as death.
My point is, if you are looking at a stock like this, this is a squeeze; this is a pretty tight volatility squeeze. The Bollinger Bands here are like 3 percent, my criteria is like 6 percent. It has been in an uptrend, it hasn’t really been super flat but still, this is a clean, clean breakout.
So this is what you have got to do: I think, frankly, even though you would really be chasing it if you have an exit strategy I think your entry strategy can be, buy at $50.00. And your exit strategy is, okay, I know I am buying now because Fitzpatrick said that I could buy and we all know that Fitzpatrick is always right; not. So I am buying here at $50.00 and I am going to keep my stop down here basically below today’s intraday low of 48.23. So I will keep my stop down here, I am giving this about 4 percent room and I have got a longer time horizon. Because when I look at General Mills ( NYSE: GIS ) and I see how this thing has traded in the past, this could give me some really nice upside.
I am going into this kind of detail on this not because I am really stoked on General Mills ( NYSE: GIS ), it’s fine. I am just stoked on this methodology. This idea of taking these breakouts when they are high volume, and the big volume was yesterday but today’s volume was good too, higher than average. I look at these kinds of breakouts and I say, “Okay, can I logically buy the stock even if it is up this much?” Keep a stop below the days intraday low, which protects my capital and is the difference between the two close enough to where I don’t have to worry about having a really, really super wide stop and risking a bunch of money. In this case, yes.
In a similar vein like Netflix ( NASDAQ: NFLX ), the same kind of deal. You are buying the stock up here. Why put the stop down here below the 200-day moving average? You would be out of it before then. The only reason you are buying it is that you think it is breaking out. So you put your stop down here; 3, 3.5 percent is the only room you are giving this stock, because if it falls below that you are out of there. And you could say, “Oh yes, but then it will ultimately rebound.” Well, yes it could, but guess what? You could always buy it back too. So getting shaken out is a part of trading but the first part of trading is knowing where your entry is, knowing where your exit is and then trading according to that plan.
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