Check out the chart of Rocket lab ($RKLB) – February 24, 2025
Dan Fitzpatrick here at StockMarketMentor.com. I want to look at Rocket Lab ( NASDAQ: RKLB ).
This is a pretty good chart, right? The stock looks like it could go up, it could go down. A nice little squeeze here so it’s nice to be involved here. The only problem is, this was on February 13th, it’s the 24th, and that’s 11 days later by my math. This is what ultimately happened with this stock, it came down here and blew through the 50-day moving average on about average volume.
It kept on going here, this was last Thursday. Friday it wasn’t ugly it was “fugly”, then today, boom, even more. After this stock broke through the 50 it traded down another 16-17 percent. If you’re long this stock that was a loss that you shouldn’t have taken. When the stock has been above the 50-day moving average, it’s squeezing, and then it starts to pour out the end of a garden hose.
This was an absolute sell signal, an absolute sell signal when the stock fell below the 50. Initially, we had a stop here and sold it even higher once this thing happened. The point is; that once you get a sell signal you need to get out. Here’s the thing, why wouldn’t you get out? You wouldn’t get out because you’re afraid that the stock is going to turn around and go up without you.
Here’s how you get past that, you get out and keep watching the stock. That’s all there is to it. Why are you watching the stock? Well, because you’re saying, well crap, I was wrong to buy this stock, to begin with, that’s why I’m taking a loss. Now I want to know, as I sell the stock and take that loss, am I going to be proven wrong to have sold the stock? Well, the only way you know for sure is to keep track of the stock.
If the stock turns around and starts going up the other way, it does happen, this is trading. You say, okay, well crap, I was wrong to buy the stock, now I’m wrong to sell the stock. I’m not going to be wrong by refusing to buy it back, so I’m going to go ahead and buy it back. That’s trading and that’s just called a shakeout.
You need to be able to make those kinds of decisions when you’re trading. But I want to go back to this a little bit. Here’s when the stock broke out, very, very nice volume and then it paused here. Then it came up again, it tried to come out up, then it’s down here, but it’s still in the trading range.
Let’s look at some other indicators, which I typically don’t do but I will this time, that would have indicated to us that this stock has run its course. This is a squeeze indicator that I use, it’s derived from the TTM squeeze indicator, Trade the Markets, you should probably have it on your software, on your trading app.
High momentum here, but not so much here. There’s a little sideways price action that looks like maybe we’re going up again. This is a lower high from here by far. This is a lower high, almost the same, it’s a lower high here. We’ve definitely got declining momentum here, it’s still in this trading range, and declining momentum.
By now this is back to the midline. It’s back to basically the, oh crap line right here. This is still in the trading range, but you can see the degradation in this indicator. Now, by the way, this is still above the 50-day moving average, but what’s going on here? This is telling you something, and then of course this just continues to go down. But, as the salesman says, wait, there’s more. Let’s look at this in the context of an RSI. The relative strength indicator is really, really high 90.
Anything over 80, some would say 70, but I would tend to say 80 is overbought. That means it’s a super strong stock, it doesn’t mean that you sell it, it means that it’s a super strong stock. Now, this pulls back, as you would expect RSI pulls back. All right, now we’re into January, this stock is now up at higher levels, yet the RSI is lower.
This stock continues to go down, RSI is okay, but it’s not making new highs here, it’s staying in this crappy range, right in the middle, 60,65, in no man’s land. Now, a nice move up, well, what’s happening to RSI? RSI is even lower, now it’s diving for the bottom. This should tell you something if you’re an RSIer. Now this is really diving, so this is what’s happening.
If we just look at momentum we see the same thing, this momentum indicator on a 10. The stock gaps out here, boom, really strong momentum, look at this sucker go. It’s still holding up here okay, it’s fine, nothing wrong with that. The stock starts to pause here, look what’s happening to momentum.
This is not a great indicator in and of itself because when a stock is in a volatility squeeze momentum is definitely going to be low, we want it to be low. But when you’re looking at a stock like this, this is just one of many indicators that you can use to say, okay, what’s going on? I hear the car running, but what’s going on underneath the hood?
Now, this momentum is really, really crappy. It’s below this midline here, coming back up, coming back down into February, and now it’s down here. Here’s the point, if you’re looking at this stock just in isolation with the volume, you see this. You see it going and then it’s squeezing, it’s trading sideways and that’s all well and good, it’s great.
But if you look at it in the context of other indicators you would get the sense that, you know what? I need to be careful about this, maybe I’ll hang on to it. I’m just going to hang on to a small position. Then that way if it does fall lower as the indicators are pointing to, at least I’m not losing much money.
If it reverses and goes higher, at least I’m in the game, at least I’ve got something in there. Sometimes a stock will run counter to these indicators, but this time it didn’t.
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