Looking for a couple of trades? I’ve got two for you…on the same stock! Check out Lam Research ($LRCX)
LRCX RH
I want to look at Lam Research ( NASDAQ: LRCX ) today, this is why; this stock is right up kind of bumping against 600.00. Now here’s the thing, in this market right now breakouts, frankly, they just haven’t been working that well. Some of them like Restoration Hardware ( NYSE: RH ) for example, that was a stock that broke out here. It got chopped up for a little bit, not a huge sell-off but came back for a retest, and now it’s off to the races. It’s nice to be a bull in Restoration Hardware ( NYSE: RH ).
We are looking at Lam Research ( NASDAQ: LRCX ) here and the textbook trade idea that you get from anybody who is a pattern trader is, buy the breakout; it’s $600.00. When the stock comes above 600.00 buy that thing. It was up to 603.50, today, nice action, fairly decent closing location right below 600.00 so it could very well be if we see some buying pressure, we are going to push through that 600.00 level, clear out all the supply and then just see the stock keep going. That is what your typical trade would be, buy this breakout.
Now, I don’t have a problem with that, in fact I am saying the same thing, hey, guess what? I want you to buy the breakout. If the stock starts trading back above 600.00, go ahead and buy this breakout, in this market right now I wouldn’t give it a tight stop, give it about 4, 4.5 percent. If it falls back below today’s intraday low then get out, you can always re-enter.
There is another entry that could be an even better entry and that is one more pullback to test the 50-day moving average, which is kind of starting to trade flat. So if there is a weak day in the market you could get the stock coming back down here below today’s intraday low, you could even see it coming back below yesterday’s intraday low.
Or if it came back to test the 50, that would be the best thing of all, because you are able to start a position right here at the 50-day moving average. But you are able to then keep a really tight stop on it because your entire thesis for buying the stock is, if the stock falls back to here and then starts to rebound a little bit, I think this is a buyable bounce and so this is the kind of money I think I am going to make. Which means that if the stock falls below the 50 and hits this little area right here then I am wrong to buy the stock and I am going to be out. That’s the way you make this trade if it pulls back.
It is just really important, on trades, to have more than one plan. It doesn’t mean that you are going to execute either of the plans. It just means that you have to have a, if this, then. Oh, but if this, then. Once you can start creating multiple hypotheses you are going to wind up a better trader because at least you know what your options are.
And by the way, sometimes knowing what your options are is in accepting the fact that you literally have no options. Or you don’t really have an option, you just have one action and that’s not an option other than just go or no go. But here for Lam Research ( NASDAQ: LRCX ), I think you have got 2. I think you can buy a pullback if it falls to the 50 and then keep a tight stop or you can buy a breakout and then keep a tight stop under the breakout.
Ideally, you get to do both. Ideally, you get to buy here, and then you get to buy here when the stock comes back up above, so that would be the best-case scenario, right here. Got it, got it, that’s it. Dan Fitzpatrick, Stock Market Mentor, check this out, we will see how this trades tomorrow.
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