When a stock gaps and craps…timing is everything. Here’s your trade on Vipshop Holdings (VIPS) (August 22, 2016)
VIPS
Lets look at Vipshop ( NYSE:VIPS) here. It has been in a downtrend. If you owned it in the high 20.00s, it probably seems like it’s been in a downtrend forever. We’ve got 1, 2, 3 lows right here and then a breakout. Finally a breakout above the 200-day moving average (I’m getting to a point here), so we’ve got a stock that’s broken out, chopped around a little bit, made an earnings run and then, Boom! Reports earnings, happy day, EVERYBODY buys right before everybody sells. Typical gap and crap earnings. Never buy a stock that has run up INTO earnings, reports a great number and then trades up after market. Don’t buy that stock. Sell that stock. Everybody has already bought it. The only folks left to buy it are the lowest common denominator; you don’t want to be that guy.
So, the stock comes up here and now is pulling back. That’s the end of that, you want to be selling this, you’re done, right? No, not so fast. This is the top. So now what do you do? You make an analysis. Okay, I think the stock has broken out of a downtrend (we’ll zoom out a little bit), you can see where the stock has come from. At one point they lost like two-thirds of their market cap, so this is a pretty profound downtrend. But the stock came up on really good volume, climax top here, no question about it. From the top it’s down how much? It’s down 10 percent. So it’s a climax top, you don’t want to be in this stock now. But you do want to be in this stock under the argument, the thesis, the theory that this stock has broken the downtrend.
So now you’re waiting for the pullback to run it’s course, and that’s kind of my point here. You DON’T want to be buying this stock when it’s still on the way down, every day saying, “Well it’s gone down enough.” Maybe it hasn’t. This is really the level, below $15.00 where you might start LOOKING at it, considering it. Even if the stock starts to rally here, it is so close in time, just a few bars from the peak here. This is a lot of resistance. The only reason you’re buying a stock is because you think it’s going higher. But there’s a lot of resistance that this thing has to chew through, right here.
So instead of doing that, wait for the stock, hopefully it will be at an even more shallow slope here as opposed to a real steep one. Wait for the stock to give you the signal that it’s done pulling back and that it’s going to start moving up. You are going to see, in about 2 or 3 days, you’re going to see a crossover of the 50 and the 200-day moving average. That’s a good thing, it’s not all bad, but it is a good thing. You want to wait for the pullback to run it’s course. Then you buy with a stop that’s underneath, just underneath, not at, but just underneath that level in which you’re saying, “That’s the bottom. That’s the end of the pullback. Now I think we go higher.” That’s how I would play this pullback in Vipshop ( NYSE:VIPS), you’re just not quite there yet. So just wait for it, but it looks to me like this has broken the downtrend. All that’s left is your entry.
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