Here’s how we trade TopBuild (BLD). (November 28, 2017)
BLD
I want to look at TopBuild ( NYSE: BLD ) here; insulation installation. The company has really strong, steady growth. Their relative strength is pretty high I think it is 93, something like that. It has a lot of things going for it, most of which is, frankly, in the trend here. You can see where the best buy point was back here when the stock was in a really tight squeeze and it broke out above 40.00. Then you would add when the stock made that move and then consolidated; I am not really adding there I am waiting until the stock hits a new high and then I am adding to the position, and then the stock does what it does.
I want to talk about this aspect right here. Let me show you what can happen a lot of times. We see this stock trading in this channel. And we see how it has essentially traded around the 50-day moving average and it has held that level. We can look back here; it has done the same thing. But then we have got this little thing here. So that would (in fact it did me), that would shake out somebody who is averse to risk. Because wherever you are long the stock from it doesn’t matter. For me, I look at this 50-day moving average; it may be a little obvious; we see support there. We see the 50-day moving average here and then suddenly the stock spikes down here on really high volume. And frankly I forget what the catalyst was; it doesn’t matter. Maybe there was nothing at all. Maybe it was just the way the stock was trading. Then the stock recovers three or four days later.
You can look at that as a shot across the bow, where a month or two or three from now when the stock is down at $40.00 you look at this part here and say, “Ah, that was the first time when I saw that institutions were selling this stock. It is an illiquid stock anyway. It shouldn’t have done that if it was still under accumulation. I should not have been in this stock.” That is all well and good but the stock has actually rallied higher and now it is up at a new high. Point being, that this shakeout here, think of it as it just kind of cleared everything out. It kind of cleaned the pipes a little bit, got all the weak hands out of the stock. The weak hands that would probably sell if it hit $70.00; you are just in it for a short trade or something. Got those out of the stock and then now the stock is under accumulation by stronger hands. And so you are waiting for the stock to move up to a new high. Low and behold, you wind up seeing that the move that occurs after the shakeout a lot of times is stronger than the move that occurred beforehand, which ultimately failed of course.
This is one of those things, one of the many things that Mark Minervini talks about in his trading book, which I highly recommend. He is not a competitor, he is a friend and he is a heck of a trader. I will let you know if there is anybody that I think you can learn from. So definitely pick up that book and you will understand a lot more about what I am talking about because I have a very similar approach as him for one reason only, because it works. His approach and mine is essentially William O’Neil’s approach. One of these days maybe instead of Investors Business Daily it will be Dan Fitzpatrick Daily because I became a real pioneer. But instead I am just following the master and this is how I would trade TopBuild ( NYSE: BLD ). So you are long the stock, keep a stop right underneath the 50-day moving average. Give it a little bit of room to move but ultimately I think the stock is going to make you money. I hope so because I want to make money too.
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