If you made the trade on Walgreens ($WBA) and CVS ($CVS), you’re in profit protection mode now. Here’s how to do it. (March 13, 2019)


I want to look at a couple of our oversold bounce trades and here’s why: I looked at Walgreens ( NASDAQ: WBA ) and CVS ( NYSE: CVS ) several days ago, not here, here. The idea was that these things had absolutely gotten the snot sold out of them, traded down and printed a green day. CVS ( NYSE: CVS ) had the same thing and so the idea was, there had been big downtrends for a while; it looks like a selling climax, maybe not, after all, you could see where there was a potential selling climax here and that turned out not to be the case.

Think about this for a minute, let’s say you bought this, you are a real aggressive dip buyer, you buy this stock here at the close. Well, the next day the stock trades down BELOW “yesterday’s” low and you get stopped out for a 1 percent loss, basically it was a wash. The reason you got stopped out so quickly is because your idea was that the stock traded down like this and then we finally got an up day. So that means that this is the end of the selling right now, blue sky ahead, we go to $100.00. Then the very next day, boom, it turns out that didn’t happen.

Now, and this is really important, you don’t sit there like a fool and hold this stock at $56.00 hoping that it is going to come back and ultimately rally above this level. It might but hope was not your strategy, at least it shouldn’t have been. If the stock trades down lower than it was on this prior day it proves your thesis to be incorrect. It proves that you were wrong. Dude or lady, take the clue, take the hint. Get out of the stock and then wait and do it again.

We got a better deal here. Volume was heavier than average after some heavy volume down days, we had that here as well but this was kind of a push. The close was pretty close to the open so that wasn’t the best thing. But this was a little more convincing; you can’t control how much the stock rebounds but you can control how much you lose. You can keep a stop right there; you keep your stop right here and then once again, if you are wrong, if you are going to pick a bottom so much go to medical school and get paid for it, you’ve got your stop set just a little bit below here yet again and if the stock falls you are losing about a percent.

This is what I like about taking these types of trades, your RISK is defined. Your reward is unknown but your risk is defined and it’s a pretty good definition of risk, 1 percent, I’ll take that for an unknown reward. Then the stock is up here now. So let’s say you buy it at the end of the first day, you get the big rebound and so you are up 6 percent, almost 7 percent on the trade in 3 days. And again, it was a defined risk.

Now at this point I would still stay long this stock, I think this can be a good one. Just keep a stop on a part of your position, say at $55.00 or something like that so you are not giving back too much of it. But I wouldn’t be taking profits yet, the stock is telling you that it is moving higher. Look, heavy volume on a nice move higher so there are buyers coming in here. This company isn’t going out of business. So just raise your stop to there; protect your position, protect your profits.

Now Walgreens ( NASDAQ: WBA ) is giving you the same thing only not as much of a profit here, it’s the same type of thing though. You put your stop just below this level here and then as the stock moves up you start raising your stop here, you really can’t raise the stop too much. Frankly, if it was me I would have moved into CVS ( NYSE: CVS ) right away.

These two stocks are trading in sync and so as long as you are in the stock just make sure you are protecting your position and don’t sell out all at once; sell in fractions and you will find out that you are actually making more money.

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