Here’s your trade on Churchills Downs ($CHDN) – July 29, 2024
Dan Fitzpatrick here at StockMarketMentor.com. I want to look at Churchill Downs ( NASDAQ: CHDN ), or I guess it’s Churchills Downs. I don’t know if Winston Churchill owns this thing or whatever, but I know they race horses there.
Anyway, the reason I’m covering this is, I noticed IBD had this in an article today. They’re calling this a cup and handle, which I kind of disagree with on a fairly fundamental level. But they’re calling this a cup and handle, I’m looking at this in a little bit different way. And by the way, the stock peaked, this was on the 16th, and it peaked at 146.64.
A typical IBD breakout buy would be, when the stock breaks out above the most recent high, within a congestion pattern. They’re really, really good patterns and they have their analysis right on, most of the time, and I think including this time. Again, I’m just looking at it a little bit differently. If I wasn’t I’d say, Hey, go read IBD.
They have it as a buy point when the stock gets above this prior high, so it’s a typical breakout buy. I would agree with that, though I also have a little bit different take on it, and I can give you two entries. The first one is, yes, buy it if it runs up tomorrow above this last high. Basically, if it runs through this line I’m going to set an alert.
Do you know why? Just because I can, right there, we’ll give it a little more room here, so that will probably be triggered tomorrow. What I like about this is, I want to zoom in on this area here. I see these converging peaks and valleys, lower highs, and higher lows. Here was a low, and then a higher low, and then a higher low still.
This is what Mark Minervini would call a VCP, a volatility compression pattern, so I’ll go with that. The stock traded here on about average volume. But then over the next couple of days, it blew out the top. And it ran, for this stock, 3.7 percent, that’s a pretty good move on a stock like this, it’s a little sleepy, but it did have a really, really nice move.
Then on the fourth day, boom, it gapped up, it was a gap and crap. It sucked everybody in who buys on the fourth day, don’t ever do that, and then promptly sold off. It eclipsed the entire move, it fell completely through this whole congestion here. This would be, I’d say, 138.00 is really the base of the squeeze. And right here about 142.00, this is wider than it actually is, but this is your base right here. There’s where it is.
This was the volatility squeeze within this congestion pattern. It broke out and then fell completely through the bottom of the box here to the 50-day moving average. And so this was a complete bust. You look at it this way, hindsight is always perfect, I’ve never had a bad trade when I’m talking about what I would have done on the left part of the chart.
As you look at the chart here, you can see the pinch here, and then boom, it breaks out, that’s a buy. It comes up the next day, that’s a continuation, awesome. And then the next day, well you could say a gap up, and then a pullback. That’s not good, not a good sign, but volume was lower than average, and we still have a higher low relative to these prior days.
Each day it’s a higher intraday low, and a higher intraday high. I think we’re okay here, maybe snug the stop-up. I don’t feel great about this, but it’s worth staying in, oh crap, not so much right here. Now the stock has fallen completely through the breakout level. Still low volume, but price is price.
So at this point, you really have to question whether this was a typical kind of a fake out breakout. It pulls back, a little bit of hope, we all love a little bit of hope. You don’t want to trade on that but we do. Everybody loves a little hope. I’m putting this on our Active Trade List, conditionally, for tomorrow morning.
If the stock breaks out above here, then it’s probably something that we’re going to want to put on the list. I mentioned at the outset, that it would be nice to have a secondary entry and I would put it back here. If the stock, rather than breaking out, if it pulls back to anywhere in this area, anywhere in here, even down to here, if it pulls back and then starts reversing, well that would be a better entry.
In a way, you could say it’s a riskier entry. I don’t really look at it that way because we’ve got the stock, rather than buying the breakout above current resistance, instead, we’re buying the rebound off of current support. So I would say, any pullback and a bounce is actually more of a sure thing than this way. Because breakouts really haven’t been working that well.
I think the better trade if we get the chance, is a pullback to test the 50-day moving average. And then actually a successful test of the 50-day moving average. I’m not really sure whether the test is going to be successful. Once we get a test here, then you put a really tight stop on it and you lower your risk.
Free Chart