Want to know what a 3-candle reversal looks like? Check out Pentair (PNR). (April 11, 2019)

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PNR 

Last night I taught a class for members, basically, how to go out and clean up when there is blood in the streets. What I was talking about was these big nasty sell-offs like we have here in Pentair ( NYSE: PNR ). There were two setups to do it; one of them was day one (I can’t teach a class in 3-minutes here). The stock sells off and it sells off hard, over 10 percent, but it never rebounded. You don’t really want to buy reflexively right at the open.

A stock that is down 10 percent, definitely don’t short that stock. Don’t sell it, if you are long the stock and it gaps down 10 percent think about it this way; I am already screwed so how much MORE will I be screwed if I just hang onto the stock as opposed to sell now? Because if I sell now I am down 10 percent on the stock, I was holding it back here, if I sell now all I am doing is locking in a 10 percent loss. But if I don’t sell now I have avoided locking in a 10 percent loss, which is always a good thing unless the stock keeps going down. So you avoid locking in a 10 percent loss and the next thing you know you are down 15 percent and suddenly 10 percent is looking pretty good; so it is a fine line.

But frankly, it’s actually a bright line because the stock gaps down first thing in the morning, that’s when you are looking for the bright line; okay dude, are we going up or down? In this case the stock continued to go down so you are looking to capitalize on that. You are not the guy that held to stock and you are trying to figure out whether you sell or not. You are the guy that is on sidelines trying to figure out whether you are going to buy or not. So the stock starts moving down, you don’t buy.

What you also don’t do is forget about the stock. You watch the stock and see how it trades the next day, boom. The way it traded the next day was, it stabilized. It was up just slightly but you are not going to write home to mom and tell her about this awesome stock you found. This now has the makings of a multi-day reversal. A big move down on the first day, the second day is stabilizing. The only way it stabilizes is if there is equilibrium between aggressive selling and aggressive buying. And then finally, on the third day, the stock moves higher.

This is how you are actually making this trade: If you didn’t get in on this day that’s okay. You look at this stock now, this would be yesterday after the close, and you say, “Okay if the stock moves above 39.50, which was the intraday here; if it moves above 39.50 then I do have a 3-candle reversal, 1st candle, 2nd candle, and then I am looking at the 3rd candle, that’s when I am buying. I am buying at 39.50 and then boom, that’s what you get today, on pretty good volume.

So you are in at 39.50, you’ve got a 50 cent profit, again, you are not going to write home about that either but 50 cents made is better than 50 cents lost. Now you are in this stock at $40.00 and you just continue to ride this thing higher. My bet is, it is not going to be but another couple more days till the stock at least tests the gap high here, that intraday high of 41.00.

I just wanted to show you this stock because if just dovetails nicely into what members were looking at last night.

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