Thinking about buying Etrade (ETFC)? Here’s the long and the short of it. (September 05, 2017)


I want to look at E*TRADE ( NASDAQ:ETFC ) today. All the financials are close to imploding for various reasons, probably the most notable is that bond yields are falling. But, I want to look at E*TRADE ( NASDAQ:ETFC ) and this is why: Because I have drawn the lines here on this kind of triangle. This is not a text book cup and handle, but I can kind of draw it out. It is a little bit prolonged to be a cup and handle per William O’Neil’s preference, and he’s the man, but you see the general characteristics. A new high here and then a pullback in this area.

We can also see (I will keep this view here), if you look closely we can also see where we go some volume spikes here, some green volume spikes. So there is accumulation, right? And so we are looking for a breakout here. If the stock moves above 42.00, then that is a good buy signal. So, what we do is (I may surprise you where I am going with this), what we do is, we put a buy signal there. We want to buy this stock IF the stock rallies to 42.00. If it does not, if it stays in this range, talk to me in a month or even just a couple weeks, if it is still in this range then maybe we want to buy it because this “base” is better formed. But right now this is just a sideways drift.

But what about the other side of the equation, and that is the short side? What about shorting this stock? Because again, all of the financials are starting to break down. None of them, other than the reinsurers have really imploded, they just all look weak and you kind of don’t want to buy them. In that case, first let’s summarize again: The time to buy E*TRADE ( NASDAQ:ETFC ) is if the stock breaks out above 42.00. Right now it has got about 5 percent to go; right now it is at $40.00. I only want to own this stock if it breaks out to a new high.

So, if I am shorting this stock I can short the stock if it breaks down below 40.00, it already is. The idea is, I am able to contain my losses by setting a buy-stop right where I would WANT to buy the stock if I was waiting to get in. So we are kind of reverse engineering where our stop would be if we were to short the stock. Let’s say you short the stock right here. You have got a buy-stop up here. What have you got? You have got a 4 percent risk. That is a pretty good risk/reward ratio, particularly when the reason you would be shorting the stock at 40.00 is because you are thinking it may fall down and test the 200-day moving average.

My point is this: Use whatever your long entry would be, if you are looking to buy a stock in a real tight pattern, use your long entry as your stop-loss if you are looking to short the stock. And then, one last thing here, let’s say we get a rebound here, the best time to short this stock is right up here, around $41.00. Why? Because it is going to fall lower then? No, not necessarily, although that would be nice. The reason you would want to short it up here is because you are risking even less in order to take that short. Your stop is still right up here but you are shorting very close to it, so you are risking about 1.6. Basically that is an ante in a low stakes poker game.

So anyway, use this type of analysis in determining what your risk is on stocks and choose the direction you want to take. Always focus on the risk first, the reward next.

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