Pocket Pivots

Pocket Pivots

The pocket pivot concept is, in essence, a favorable early-entry buy point in a stock. Buying pocket pivots are advantageous because the signal attempts to get investors into stock early and often times before it has broken out of consolidation. Stocks alternate between trending and consolidation and an area of consolidation provides an investor an excellent time to enter a stock early in preparation for the next move higher. It also allows investors to add to existing positions in a winning stock, if they so choose, as trending stocks often have multiple pocket pivot points as they move higher.

The basic premise of the Pocket Pivot:

  • Institutional buying creates new-high base breakouts, but we also know that institutional buying occurs within consolidations and during uptrends. 

  • This buying within consolidations and uptrends in most cases leaves price/volume "footprints".  These footprints are big volume spikes, typically 50% or higher than the normal average daily volume.

  • The pocket pivot describes that "footprint," and provides a clear, buyable "pivot point," or "pocket pivot buy point."

  • Pocket pivots also provide a tool for buying leading stocks as they progress higher within uptrends, extended from a prior base or price consolidation.

Prices of stocks cannot trend (higher or lower) unless there is institutional activity. The average investor does not have a pile of capital large enough to move the markets, only institutions do. As such, it can be profitable mirroring their movement, which is visible via big volume. No different than tracking elephants. Just look for the big footprints and big piles of ….

Pocket pivots can occur at any time but not all are a buy signal. To increase the probabilities of a profitable outcome, I have found that buying only during (or a breakout of) consolidations provide the highest winning probability.

A good example of pocket pivots can be seen in the AMD chart below. Those that I have annotated were the only ones that met my criteria. Notice that today, AMD registered a pocket pivot buy signal yesterday (note the big volume and break out of the area of consolidation), moving higher by more than 11% on the day.  152M shares traded vs the 10day average of 49M which is a confirmation of accumulation by institutional investors. The good news for is that our core+ accounts purchased AMD earlier in the year during the first pivot breakout. Its been a frustrating few months during this sideways consolidation but our patience has been rewarded. Upside targets are above at T1, T2.

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As always when it comes to investing in anything, YMMV.

Curious Minds Want to Know

There should be no question as to why people need to invest. The cost of everything you need continues to rise and your savings need to keep pace. In the chart of US Price and wage changes below, I wonder if the #2 biggest riser, college tuition, includes the cost of paying bribes, proctor assistance, photoshop training and crew lessons? If not, can you imagine how much further ahead of hospital services it will be in the next update?

Curious minds want to know.

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20 Rules for Markets and Investing

Whether working with longer-term investors or traders honing their skills, one of the most important things is to insure they have a set of rules. The good news is the rules below are appropriate regardless of your timeframe, strategy or approach. I have to give thanks to Pension Partners director of research, Charlie Bilello, for putting the original list together. I keep it taped to my monitor as it is invaluable in helping to keep the focus. Please note they are in no specific order and level of importance will vary depending upon the individual reader/investor.

1)     1)     Ego is your biggest enemy. Humility is your best friend. (Ego is concerned with who is right while humility is concerned with what is right.)

2)     There is no reward without risk. You can’t have one without the other as such if it seems too good to be true, it is.

3)     The longer your holding period, the higher the odds of your success

4)     Every time is different. You haven’t seen this movie before. No one has.

5)     Price targets are pointless. Forecasts are foolish.

6)     Plans > Prophecies.     Evidence > Opinions.

7)     Cycles and Trends exist.  That does not mean they are easy to predict or navigate but they provide an edge for those that know how to use them.

8)     Focus = fastest way to build wealth (when you have it) and the fastest way to destroy it (when you don’t)

9)     The only certainty is uncertainty. Expect the unexpected. Suspend the disbelief

10)  Time is infinitely more valuable than money. No amount of money can buy the past.

11)  Saving is more important than investing. No savings = no investing.

12)  Simplicity beats complexity on average.

13)  Lower fee beats higher fee on average.

14)  Doing nothing (low frequency) beats doing something (high frequency) on average.

15)  Don’t be afraid to say “I don’t know”. Stay within your circle of competence.

16)  Volatility and sentiment are mean-reverting at extremes.

17)  No one rings a bell at the top or the bottom but many ring it in hindsight.

18)  The strategy you can stick with is the best strategy.

19)  Diversification & asset allocation protect us from our inability to predict the future but also from not having a plan.

20)  Controlling your emotions (fear and greed) is the hardest and most important thing.

From the Ashes?

I haven’t written about the Millennial savior, bitcoin, in well, it seems like forever. Not because I don’t like it but rather its was in a horrendous long-term downtrend, losing more than 90% of its value in 15 short months. What’s there to talk about? But, of late its price has taken a much more constructive look as it has been trading sideways (instead of falling further) and looks as it may have found a short-term bottom while trying to clear out the remaining sellers. This, of course, is an ideal setup for a bullish trading opportunity. While it may turn out to be a long-term investment (not my belief), until it proves itself it must be viewed only as a trade.

san ramon fee only napfa investment advisor certified financial planner gbtc 3-6-19.png

As you can see, price has been contained within the rectangular box, is now above a rising 50-day moving average while volume (bottom pane) has been shifting from large red candles (selling) to green (buyers). In spite of its potential short-term holding period, the first upside target is ~25% above the upper boundary of the rectangle. Two ways to trade this setup using this pink sheet bitcoin proxy, GBTC, is to buy the breakout of the rectangle, with a stop placed 3% below the breakout level after purchase. The second, which has a much higher upside target (>50%) but has less chance of getting filled, is to place a limit order down at the bottom of the rectangle. If the order gets filled, your stop would be placed 3% below the bottom of the rectangle.  In either case, the risk is well contained (likely less than 5% depending upon the price of GBTC gets filled at) and provides either a 25% or 50% potential pattern target reward. A minimum 5:1 or best 10:1 reward to risk is a setup any investor/trader would love to have as they don’t come along that often.