MSTR 

I want to go over MicroStrategy ( NASDAQ: MSTR ) today. This is the company that buys a boatload of Bitcoin, it’s almost like they are a Bitcoin play or trade. This is the thing, this is just going to be a real quick one here, I like this stock. It just looks like it’s ready to run higher but not quite yet.

What it comes down to in trading is entry. If you get the right entry the trade starts working out really well, it works out well from the start. Now, that doesn’t mean it’s always a winner, so to speak, but it does mean that you’ve got a good risk/reward skew. This is why I look at this stock and I say, yes, I want to own this but this is not the right time and I will tell you why.

If you look at where the stock has been, down here, this last low, is now right at the 50-day moving average. And so you would have to look at this and say, alright, if the stock pulls back, how far would it have to pull back before I say, oh crap, I’m wrong? Well, it would have to pull back clear down below the 50-day moving average.

This is what inexperienced traders, newer traders, or frankly, losing traders do, they will start lowering their stops. They will lower their expectations. First, they will say, if the stock falls below yesterday’s intraday low of, say, 691.00, then I will sell. And then it does that and then they start ratcheting down to the 50-day moving average. Oh, the 50-day, 636.59, so if it falls below that, then I will sell. Oh, it fell below that, well guess what? The 200-day moving average is right below. And so I will hold this until or unless it breaks down below the 200-day moving average. Yes, I am sure it’s going to rally there.

Well, what happens if it doesn’t? You are buying here and you are ultimately risking over 20 percent just by holding this thing, ratcheting down your stops from one level to another. And so in this case, for me, what I look at is a logical place to say, oh crap, I’m wrong, that place is if it falls below the 50-day moving average.

So let’s look at where that is here. Where the stock is right now, 730.00, if it falls below the 50-day moving average, we’ll say to here, that’s over 13 percent. If you are waiting to sell here, and then frankly you say, well, 630.00, 632.00, maybe I should just hold it and maybe it will bounce at 630.00.

So now you are down to 129.00 or something like that. Now you are at 14 percent risk. Okay, fine, that is your risk on the trade. That’s where your stop would be. Now, what about the reward? The stock could go to infinity, there’s your reward. But as a trader you have to look at what your upside is. Where, based on the chart, where would I expect the stock to go if it is going to go until it hits supply, until selling pressure overwhelms?

And in that case, you have got to look at 800.00. You have got to look at from August 9th when the stock rallied clear up to 798.00, that’s it. And from that level it pulled back over 20 percent. So this stock has a lot of volatility that it can create or generate. It doesn’t even really look like it in the chart itself.

And so we are talking again, we’ll say about 15 percent to the downside and not even 10 percent, just about, we’ll call it 10 percent; 15 percent to the downside, 10 percent on the upside in kind of a risk/reward calculation. That’s not where you want to be, that’s just not. And so I look at this and the fundamentals on the stock are really good. The company is growing in every way, earnings, sales, and tax margins, after-tax margins. So it’s got really good fundamentals and I would like to buy the stock, I just can’t buy it here.

I hope this video helped because the point is, every stock that you want to buy, you don’t get to buy it right when you would like to so this is one to watch.

POOL 

Pool Company ( NASDAQ: POOL ). Cool, it’s getting towards the end of summer, and do you know what? The swimming pools are still out there. This is the biggest company, it operates pool equipment, has supply centers, the whole bit. If you’ve got a swimming pool, and I do, you’ve probably done business with these guys.

The cool thing about this stock is, technically, it’s in a really strong position here. It’s in a really good uptrend, I would just kind of as a general proposition, be long this stock as long as it’s staying above the 50-day moving average, this just seems to be the trend. They don’t report earnings until the end of October so earnings are not an issue.

From a technical standpoint, I really think that this is kind of like your general buy zone, right there, somewhere in there. If you are looking at this, the 50-day moving average would kind of be continuing to drift up. And so if the stock pulls here a little bit it will be intersecting the 50-day moving average. And then at some point, it is going to lift off and go again.

As I look at this, this isn’t a super timing issue where I say, right now, hey, go buy this stock tomorrow. However, if you do buy this tomorrow your stop is right there, it’s like 2.5 percent. You are not giving this much room at all because if the stock falls below the 50-day moving average you don’t want to be long.

It doesn’t mean you can never buy the stock back, you are not getting a divorce, you can take it out on a second date, the first one didn’t work out too well. You took a vegan to a steak place, sometimes they just don’t like that.

The bottom line though is, this could turn out to be a really good trade but for now, it is just one to watch. By the way, from a fundamental standpoint, this company is doing awesome. It’s got what I call a 3×3, which means that over the last 3 quarters earnings, sales, and tax margins have all been improving versus the same quarter the prior year.

So it’s like you’ve got improvement and an acceleration in improvement. That’s a really cool thing, don’t you wish you could say that about your trading account every week, every month, every year? Trade like this and you will be able to one of these days, I promise you.