Taking a walk down price and volume action to get to a buy point on DaVita ($DVA)
Dan here at StockMarketMentor.com. I want to look at DaVita ( NYSE: DVA ) here. This is one of the very few stocks that is still working well.
This is a stock that had been drifting sideways for a while. Just look at the way it knifes through the 50-day moving average right here. It had gone from pretty consistent support for a while. And then back around here, late June, early July, the stock really drifted right back down through it. Then, for a while, the 50-day moving average was certainly more resistance than support.
Well, that was then, this is now. The stock has essentially gone through this basing phase, which was about 2 1/2 months. If you look at the volume at that time, we got this big skyscraper, which is a green one. That means something, that’s institutional accumulation, a big move there. But then, generally speaking, all the volume during this downside drift was low. None of these really got up above the average volume, and this is over the last 20 days.
I get it, we have these big things here, which can really skew things. But you can see, just generally speaking, there’s been a real low-volume pullback all the way until here. We get a heavier-than-average volume, it actually first started here on a big down day. Higher than average volume, and that’s got to get your attention. But then after that, low volume again.
Then we get another heavier-than-average volume day, right here. It doesn’t look like it with all these others in contrast, but this is higher than average volume, followed by an even bigger volume bar in the green. And then a bigger one is still in the red. Now, I look at this as just one big flush. You can almost hear the toilet flushing sound right here, where we have this nice steady drift, suddenly the Tidy Bowl man comes out.
Then finally, the big crap took right here, and then since that time, it’s been under accumulation. And guess what? The volume’s been increasing on the way up. We’re in a low-volume sideways drift here. A big volume bar here, and now we’re settling out here. I’ve really been doing a play-by-play analysis of a stock that had been in a solid uptrend. It took a little breathier for a while and is now regaining and getting its mojo back.
The reason I’m covering this is because I think this could be a good trading opportunity for you. And by the way, the weekly chart looks pretty good too. This is a really, really long cup, a little handle here, a breakout here. So just on the weekly chart, I can definitely make a case for this stock, but the daily chart is what I’m really looking at here.
If you’re buying this stock here, you can choose to use the 50-day moving average as support, it should be on any pullback. And that gives you about a 6 percent risk on this trade. You could use the 20-day or 21-day moving average here. But frankly, when you’re that close where, Oh, I have my stop just within 2 percent or something, chances of you getting stopped out, just in the morning rotation on any given day are pretty high, so you don’t want to do that.
My suggestion is, if you are going to buy this stock start it with a small position. Once this starts getting some traction and moving to the upside. Then you know that you got a pretty good sense, that that this has been a trading bottom here and you can add to it. Because ultimately, again, I think this stock goes lower.
I don’t recall seeing a weekly chat like this, where you get to this part in the pattern and the stock just falls. I don’t recall seeing it, but I have seen many a chart like this, where the stock might fart around here a little bit, but then ultimately start on the next leg higher. That’s what I think is happening here with DaVita ( NYSE: DVA ), so I want you to be part of it.
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