Trading this volatility squeeze on Applied Micro Circuits (AMCC)
Discussed in this article: Applied Micro Circuits Corporation ( $AMCC )
I want to go over these volatility squeezes real quick. Here, the initial volatility squeeze, which is characterized by tight Bollinger Bands. Typically the width of the bands is no more than 6 percent of whatever the value of the 20-day moving average is. What you want to see is a breakout above the upper band, on volume, that’s what we got here. But then you need to see some follow-through, we did not get that here. So this was a fake out before it really even got going.
The stock fell down, if you bought here on the 5th moving average great, you’re the one go ahead and hold that. But otherwise, if you’re looking for the squeeze look at the difference between this day when there was no follow through, and this day where there is some follow-through after the break out here, so this one actually has more legs. I’m looking at this squeeze as one that could probably go for a while. You can see on the weekly chart that the thing has essentially just about gone parabolic; at least it looks like that.
So what I want you to do is, go ahead and stay long this stock, you’re a little bit late be to be buying it because it’s gone up three days in a row, you can probably still make some money if you’re buying it now, but really this is more an idea related to holding on to a squeeze that you got in on in time.
So you’re buying here, the stocks moving up, just let it continue to move, and only when you get a red bar like this should you start thinking that maybe phase one is over, that phase one is a breakout to the upside and a pullback to test the breakout, that’s phase two, and finally phase 3 is up this way. So this is how you trade squeezes.
I think AMCC ( NASDAQ:AMCC ) has a little bit more room to go. It was up 2.8 percent on a day when most other stocks were down, when the market was looking weak. So I would look at this is a stock that I absolutely wanted to buy on any kind of weakness. If it pulls back here, then yes, this breakout was a fake out, but the uptrend is intact and what you really want to do is just look on getting the best entry.