Anatomy of an uptrend, top, and downtrend. Check out Control4 Corp (CTRL) (April 13, 2018)


I want to go over a basic turnaround story here in Control4 ( NASDAQ: CTRL ); more of a trading lesson than anything else. If you look at this chart here it is really, really obvious that the stock topped out and is now rolling over; we can see that. You can see that the 50-day moving average has crossed the 200. In about another week or so the 200-day moving average will actually be moving lower; now it is just kind of moving sideways.

This is a stock that has definitely seen it’s better days. I have some of their products on my house; I really like them. Of course, the company is not making any more money on me; they have already made that money. So maybe that is part of the reason why the stock is going down; because all the folks that were going to buy have already bought. I don’t know.

What I am saying is, this stock was in a really nice uptrend. And it is really important to be in stocks like this, that is the first half of the trade. You have got to be in the stock at the right time to make money. But you have to get out of it at the right time as well or at least don’t be in it at the wrong time. Because getting out at just the right time can be a little more complicated; it is not so simple as you might think because you are trying to get out when the stock is not really going to move up too much more and it is difficult to identify tops.

So how do you know whether the stock is resting or whether it is about to reverse? On the entries though, you can be more precise. I was just going over a stock in our Stock Watch video for members, I was looking at Etsy ( NASDAQ: ETSY ), kind of walking people through the trades on that stock. So I thought I would do a similar thing with Control4 ( NASDAQ: CTRL ) here.

As I look at this chart, the entries here, certainly it is great to buy right here before the big pop. Well, I am sure that is an earnings pop, probably from Q4 2016 earnings. But absent that, which would have been more gambling than anything else, this is the time you are really looking to buy this stock. When it drifts sideways for like 2 months and then the stock starts breaking out here, volume increases a little bit. Well, this was a great time to get in the stock right here, $16.00. So now you are in; you are a patient trader, you are a multi-week, possibly multi-month holder. And you say, “As long as the stock stays above the 50-day moving average and stays on trend, I am going to go ahead and continue to own this stock.” And it did; it tested your conviction right there and maybe you sold some.

By the way, you are not buying everything all at once. You are not selling it all at once, you are doing it in stages. Maybe the stock is up here, you sell it a little bit. But again, you have got to hang onto some. I have lost more money by not making money on stock that I use to own than I even want to admit to you, you will never watch another video again. It happens. So you want to have a position in a stock that you bought that you like. You want to have it until the stock is showing you, you know what? I am definitely done with this stock. That is the way I think anyway.

So anyway, the stock continues to trade here; chops around, continues to move. And even up here when the stock pulls back to the 50 it doesn’t really continue this uptrend but it doesn’t have a big trendline break either, it just breaks sideways. You are in this stock through the break of the 50-day moving average. Again, you probably sold some somewhere along the line. Hopefully, you sold at a profit, bought some back, somewhere here or here, sold some more, maybe bought some back.

But then the stock is trading sideways and you see that it broke the 50, it came back up and it did NOT test this resistance line. In other words, you see how the stock comes up here, here, here, here, all the way back to tag this resistance line. This time it doesn’t do that. That is a huge red flag. The stock then pulls back so it leaves a big void right up here so that is a problem. That is a red flag so you can say, “All right, it looks to me like the uptrend is over and now the stock is starting to drift sideways. I am hoping since I own it, that it is going to ultimately move higher. Because then this will be revealed to be a nice sideways consolidation before the next move up. My patience for holding the stock will have been rewarded.” But it doesn’t do that.

When is the first time you know that it doesn’t do that? Right here, when the stock breaks below $30.00. You can be holding the stock all the way through this; you can see it, see how it has broken this trendline. Now it is trading sideways, $30.00 and you are holding it, you are hoping for the breakout, hoping for it, there it is. That is the breakout. It is all good, we love that. Now there is a little bit of a problem because the breakout didn’t go up and test 35.00. It is just right in the middle between 30.00 and 35.00, that’s okay, hope springs eternal because the stock has been good to you; you got a little position, sideways consolidation.

I am not going to prejudge a chart before it acts, before it shows what it is going to do, so we are waiting here. The stock is at 31.00, still waiting. I am still going to wait. Okay, that is a problem. Boom! I’m out right there. The stock does what it does, it sucks people in all over the place but at the end of the day (I hate using that phrase, by the way, it is a phrase for lazy people) at the bottom right edge of the chart, we’ll put it that way; this stock is now down 26 percent from where it was an OBVIOUS “get out of Dodge.” And so if you had bought this stock back here, you are up $20.00, 126 percent, you are up $20.00. But then you give so much of it back by still being long the stock and not selling it when it was obvious that you should sell.

So when you are looking at your positions think about this type of thing: Where are they in the cycle? Where are they? Are they doing this? Are they doing this or are they doing that? You are going to be making money on one part of the cycle. The other part of the cycle you are not going to be making money. And on the other part of the cycle you are going to giving it back. Here you are giving it back; look at the other stocks in your account and you tell me which part of the cycle you are in.

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