Two sources of support for Universal Display (OLED). (February 06, 2018)
OLED QQQ OLED
Today I want to talk about Universal Display ( NASDAQ: OLED ) in this free video and this is why: There were a couple different ways that you could look at this and buy this thing first thing in the morning. But just to set the framework this is what I would call a broken stock. I guess some could say it has never not been broken. What I am talking about is, generally speaking, this stock has been trending higher. It would trade in a tight box and then ultimately move up and do what it does. But on this last move it really, really extended and then since that time has swung in wider ranges.
That is an indication, particularly when you look at this volume, it is an indication that there is now, the best way I could say it is, there is a disagreement in price. Traders back here kind of in October, the idea was the fair value was around $135.00. Back here in March and April, the consensus was it was in the mid-80s. That is what the price should be. But here when this stock has shot up past 200.00 and then fallen back below 150.00 in just a few weeks there is a real disagreement, there is a real battle there.
The reason I am mentioning that is because when I look at this stock I am not thinking, “Okay, buy the dip and then watch the stock just continue to new highs.” That could very well happen but you have to realize that a steep drop like this, it really leaves a lot of pain behind. For every share that is sold somebody bought it. So there is a lot of regret in a steep pullback like this, just a lot of pain in this chart. And so you have to assume that as the stock moves higher there is going to be some selling from weak hands; from people who just want to get their money back. That is a very, very real market dynamic. So you have to assume that this stock is not going to just climb out. Again, it might do that but it might not.
What we are looking at here is a trade. And when a stock falls down here and gaps close to the 200-day moving average you have to start looking at this as a viable trade. It closed up 6 percent on the day but if you had bought at the open it actually closed up over 10 percent; you could have made about $15.00 on it. If we look at the intraday chart here, let’s just look at it on the 5-minute, you could see the way this thing gapped down and then moved higher. So let’s compare that to the QQQs ( NASDAQ: QQQ ). You see the same kind of thing on the NASDAQ-100 ETF ( INDEXNASDAQ: NDX ). You can see that the QQQs ( NASDAQ: QQQ ) were doing the same thing. First thing in the morning they rebounded.
But here is the thing with OLED ( NASDAQ: OLED ): Let’s say you decide to buy that first thing in the morning and it was based on the proximity to the 200-day moving average. There was also another way that you could look at this that would give you more confidence that that was the time to buy. And in that, we look at these pivot points. A LOT of stocks were trading according to their pivot points here. Essentially these pivot points are calculated by the prior day’s trading range. The “pivot”, that is the middle one here, you can’t really see it, it is just a different color, the pivot is right at the mid-point.
There are three levels of support at the bottom and three levels of support at the top. Often times if a stock, particularly if a stock gaps down, it will gap to one of these support levels. You have to watch that stock and if it continues below the support level then just stay away. Wait to see what happens when it hits that second support level. Does it start to bounce? If it starts to rebound then you go ahead and buy the stock and then you put your stop just a little bit below that support level, that second level of support and that is S2 here, right over here, S2, 139.71, that is where it is. That is the second level of support that this stock gapped down to. The opening price was 141.00 so it was just $1.70 above this second support level. So it gaps down here, it starts to move higher; you can immediately buy the stock.
Again, you are looking at the market, you are making sure that things aren’t continuing to sell-off. If it is a bullish market, and in this case it was, you are buying the stock, it is close to the 200, it is rebounding off of the second support level. Then you keep a stop right under there and then you just ride this thing up all day. This is how you trade this type of thing. I could show you countless examples of just this same type of action. This is what the market was doing all morning; gapping down, finding support and then almost immediately rallying. Use this type of trade on these extreme sell-offs and my bet is you are going to find a way to make money pretty consistently on this.
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