Wondering how to trade this pullback in Essent Group (ESNT)? Here’s your strategy. (March 20, 2017)


Essent ( NYSE:ESNT ), one of the crowd favorites these days, PMI Insurance Company. The 50-day moving average is where this stock is, that is where the floor is, right here. There are some that would say, “Oh, this is a double top,” because it went higher. High here and this is a lower high, time to go. I don’t look at it that way, because frankly, think about this, if you are going to see this as a lower high, then you have got to see this as a lower high, and you would have missed a heck of a move. We will see these things from time to time.

What I would suggest doing is this: Focus on what can go wrong. Nothing has gone wrong, the stock has just pulled back. Maybe you get an even better opportunity tomorrow. What can go wrong is, the stock can start trading below the 50-day moving average. The only time it has really done that on this chart is back here in October where it did it for several days; and that certainly would have shaken me out of the stock, I will say that, it is just a function of trading. But then when the stock starts moving again you have got to get back on that horse.

What I am suggesting here is, you definitely don’t get off of this horse. There is nothing wrong with this, boo-hoo, the stock went down today. Well, so did the S&P ( INDEXSP:.INX ), so did the Banking Index ( INDEXDJX:DJUSBK ). So I look at this, Essent ( NYSE:ESNT ), it is down 1.5 percent. Well, maybe it goes down another 1.5 percent tomorrow. I would look at any pullback here as a buying opportunity, not as a signal to sell. Any pullback that is closer to the 50-day moving average, that is when you are buying. You getting a chance to buy it essentially at this same level as we got on this first pullback buy; Where the stock pulls back and then shows you some kind of a hammer pattern, where the high and the low are pretty close together on the day. But the stock dipped down quite a bit, so that gives you some sense of a floor here.

So if we are looking at this really as ultimate support, we could see the stock trade down 3 or 4 percent, which would take it below the 50-day moving average. But even though it would be below the 50-day moving average it is still above this last low here. So I have drawn a trendline here and I have an alert set on this. If Essent ( NYSE:ESNT ) pulls back and hits this trendline I am going to get an alert. What I am going to do if I get that alert is, I am going to start watching the stock much closer. Look for signs that the stock is being bought and then that would be a better entry for me. So I would be buying an uptrending stock, on a fairly significant pullback after a month and a half, hopefully maybe even two months of consolidation. That is the kind of trading that you want doing; where you are buying an uptrending stock on pullbacks that show you where support is.

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