SNAP 

This is Scott with your Chart of the Day. I want to take a look at Snapchat ( NYSE: SNAP ). Snapchat ( NYSE: SNAP ) had a nice big earnings gap up here in July. And ever since then it’s just kind of been going sideways. We have this nice month and a half long base of sideways consolidation around its 8-day and its 21-day exponential period moving averages.

Now, as a swing trader, those are some of the key moving averages that I use to make my trading decisions. As you can see we had this little bit of a downside reversal day. It ran up, sellers came in and pushed it back down to the 8-day. It fell below the 21-day but then came back up and recently has just kind of been going sideways.

I can draw a trendline from this rejection day here and it’s pretty close to where we ended the day today, So we have this clearly defined level of resistance on this downward sloping trendline, here, here, here and we are right under that level today.

What I want to see from Snapchat ( NYSE: SNAP ) is a move through that downward sloping trendline coming on volume. So I would probably want to have an alert on Snapchat ( NYSE: SNAP ) right around 77.50. And I would want to watch for a volume thrust through that level.

Now, in terms of risk management, as I said, I like to use the 8 and 21-day exponential period moving averages so I would probably want the stock to hold above and close above that 72.90 level. If I am buying up here I am kind of risking about 6 percent so I probably wouldn’t want to go full size on the initial breakout.

As you know, in this market, a lot of breakouts have been failing or have been retested. So if we do get a nice break we could potentially see a natural reaction back down to the moving averages before follow through to the upside. So you would only really want to size in on that follow through to the upside. Or, if we can make a new high above this high here, that level is at around $81.00. Make sure and keep an eye on it, maybe add it to your watch list too.

HD XHB 

I am going to suggest that Home Depot ( NYSE: HD ) be opened as an active trade on Tuesday. I like the way the stock has set up along the 50, it could be tighter, it’s not the perfect entry at all but I like the way the sector is acting. The Homebuilding Index ( NYSEARCA: XHB ), the ETF; this is one of the strongest ones, Home Depot ( NYSE: HD ) is in one of those.

Their fundamentals are pretty good. Their growth isn’t really accelerating on top of the accelerator but it is pretty good. And so fundamentally, technically, it’s all good. Sector-wise it’s all good. If you watched my webinar from earlier this week you know that 50 percent of a stock’s movement typically comes from sector and industry group inclusion. And so this thing, really, is firing on all cylinders.

Now, it’s not a super volatile stock. I am suggesting that our people get in around here. Again, I don’t know what’s going to happen Tuesday, except that I am going to wake up down in Mexico and not be thinking about the market., so I can’t help you there. But what I am suggesting they do is, really try to buy it at 331.00 or less, don’t chase it up. If you can buy it around this level and then you keep a stop down here below this day’s intraday low, you’ve got about 4 percent, between 4 and 4.5 percent risk.

Now, this is not a super volatile stock. If it runs up here to test this high it’s a 3 percent gain. So in this way, if you are kind of structuring your trade, what’s my maximum risk? Well, we know that, it’s down here at 4.5 percent. What’s my potential reward? And you could say, oh, I think it’s going to 400.00. Okay, well hope isn’t a trading method, it’s not an analytical way to go.

As I look at this, this is the last resistance, 340.00 is where I could expect this to go if I am factoring in a risk/reward profile and that is 3 percent. So I am risking 4 percent on the downside to make 3 percent on the upside. That doesn’t really quite work for me. And so do you know what you could do instead? You could say, I don’t want to have my stop down here. I want to have my stop down here at 319.00, something like that. So now what do we get? We’re back here at 330.00, down to 319.00, that’s 3 percent that we are risking.

Now, what’s our potential reward on the upside? It’s 2.5 percent, if we want to look all the way up to 340.00, which is what I would do, I would say 340.00, it’s almost 3 percent. So this is a better risk/reward profile and you can even go tighter, you can do here, it’s your trade. I am just laying out the different ways to do it. What I told our members is, I’m keeping this one because I like to try to trade stocks for a longer holding period and make bigger money on them than just 5, 6, 7 percent, or something. That’s how I am looking at Home Depot ( NYSE: HD ).