Did you catch this big breakout today? Here’s how I traded Fanhua (FANH) today…and how you can make money on the next move. (November 07, 2017)
FANH
We are back here at the end of August; we are looking at Fanhua ( NASDAQ:FANH ), a Chinese insurance broker. We are looking at this on the relative strength line. We want to see the RS line move higher, which is telling us that the stock that we are looking at here is stronger than the S&P ( INDEXSP:.INX ). Right now this is just sideways. Again, the stock has basically been doing nothing on some days like back here, 8,000 shares traded, so this is like a very, very sleepy stock. Then the stock started perking up.
I wasn’t looking at this stock, I never even saw it, never even saw it. And then here we are into October. You see the kind of move this thing made, 50 percent up, then a big old nasty 20 percent down. Really volatile, volume spikes, so there is activity here and it is all kind of buying. You know this because the price is moving up, in wide-ranging days, closing near the top of the range on very, very heavy volume. That is buying pressure that is more aggressive than selling pressure. Then the stock finally moves out of here, right? And then it is grinding around and then we will get to here.
I started looking at this, I was actually looking at it last week, I set my alert right here at 16.01. I was looking at this stock and this was my point of view on this. Okay, this has come up a lot. It has also got a lot of volume here so something is happening here that was not happening there. The fundamentals are good. It is a pretty good growth story, for the most part, I am not going to go into it now. It is a pretty good growth story so you look at a chart and you are trying to figure out what the heck is going on. That’s it. You look at these, it is not predictive it is informative.
The one thing that I want to look at on any given chart is, are institutions buying or selling? Because I don’t want to buy a stock that institutions are selling. And I don’t want to buy a stock that institutions are not buying. In other words, I want to be with those guys because they are the ones with the money and the money pushes the stock higher. So when I see this I am thinking, “Okay, well I can’t buy this stock up here because for all I know that is the move and it is over.” But, if the stock starts trading above this $16.00 level then I think we are going to probably get an even greater breakout. Boom! That is what happened. So I looked at this stock this morning and I actually bought a little bit, just a little bit below $16.00.
Let’s go through that trade. This was the way the stock traded today. The stock gapped down; it is on my watch list so first thing in the morning I am hitting the space bar looking through all these things. And I see Fanhua ( NASDAQ:FANH ) here. It is coming up to this line; my alert didn’t even get hit. It is really obvious when you see a big old line across your chart. You have been looking at this stock so you know what is going to happen. Boom! I stopped what I was doing and I am just watching this and I see these volume spikes. Look how high the volume is relative to what happened last week. This is institutional buying, I am telling you. Now you could say, “It is only 50,000 shares. What institutional buying?” Well, maybe it is only one institution. I don’t know. As long as it is not Bill Ackman we are probably going to be safe with this one. If it is him I am out (that was my gratuitous Bill Ackman joke).
Anyway, the stock is moving up, closing near the highs on each period, on high volume. And then when it does pullback here, look at this, low volume. And then, Boom! Another volume spike. And then low volume. And then another volume spike, all green. All green until this last one but I am not thinking about there; I am out. I see these green bars and I know that I can hold through, so I am in here. I think I bought a little more, wherever, but this isn’t ‘Trade Along With Dan.’ This is, ‘Let’s Look At A Chart and See If We Can Make Money.’ The stock is up here. I see these volume bars. I see what has happened before on this big power move. The stock is just coming out of this volatility squeeze. I mean, guys and ladies, this is a pretty impressive squeeze.
Now it is about 9 percent on the Bollinger Bands but if this had been trading sideways just a little bit longer it would be a lot tighter than that. The reason is because there aren’t 20 days of really, really tight sideways trading. So this was a stock that was ready to roll and then when it finally broke through this $16.00 range it was off to the races. You see the volume, it is all green. So when the stock pulls back, for me, I had an alert set and then I went on about my day, I didn’t really care about it because my sense was, okay it is noon time, not a whole lot of trading going on; at some point you have got to eat your BLT, right? The stock just traded sideways, down a little bit on really, really light volume. You just kind of knew, if you were watching the stock and deciphering what was happening, you knew that we would start getting volume spikes in the afternoon and they would be green.
So what is happening is, it might just be one big buyer buying the stock a little bit pushing it up until there is no more supply and then saying, “Okay, let me back off a little bit,” pulls the bid, the stock travels down a little bit. And then the buyer comes up and says, “Okay great! I’m in.” Now maybe he has a lot more shares at the same price as he did here with fewer shares. And then the stock just keeps going up. You can see this playing out in real time and then toward the end of the day the stock starts drifting lower.
Now, trust me, this buyer is still there. This buyer is still there and I think this stock will go higher. But because of the magnitude of the move today. This was a really, really nice trade. If I am up over 10 percent in a day on a particular trade I am going to want to take that off the table just because I figure others will too; I am not the only guy in the trade. I went ahead and took my position off in the afternoon. I didn’t get right at the top, I didn’t want to get at the top I just closed the trade. My alert now, the high is 18.43, I am setting my alert just to give me an early warning, we will go 5 minutes, I can always cancel it anytime I want, let’s do that thing again. So if this stock hits 18.40, up to a new high, I am back in. Why? Because that buyer is still around.
That is how you want to trade a stock like this. Get down in the weeds, look at this thing and see if you can figure out what is happening. And if you feel like you do get a handle on what is happening you are going to be a more confident trader and you are going to wind up making more correct decisions.
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