A tale of two breakouts: Look at Elf Beauty ($ELF) and Dexcom ($DXCM). (November 07, 2019)


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I want to look at two breakouts today. We are going to look at e.l.f. ( NYSE: ELF ) and DexCom ( NASDAQ: DXCM ). First, e.l.f. ( NYSE: ELF ); great earnings, right? A big huge breakout, the stock gapped up almost 10 percent and sucked in a bunch of people. First thing in the morning you always see this, big buyers coming in, that’s what pushes the stock up, and then it essentially traded lower all day long.

One thing I was pointing out to members just the other day was, in virtually every time frame on a stock that moves on a gap one way or another you see the move, a pullback and then a reversal and then another pullback. You will see it on a move down where the stock moves down and then it rallies, a reversal and then another rally. So you will see these whoop-de-do’s, whichever way they are you will see that. And so you don’t want to always just assume that the move is going to continue because typically it doesn’t. You have got to get out of a trade that is moving against you.

But here’s the deal: e.l.f. ( NYSE: ELF ), take this off of your screen, it’s done, completely trapped. Any bull that bought today completely trapped them and now you have got a boatload of resistance; a boatload of supply between $18.00 and $20.00. The stock could climb through there but it would take a heck of a lot of buying pressure because there are a lot of unhappy campers there.

On the other hand, here we have DexCom ( NASDAQ: DXCM ), right? The stock gapped up; I remember looking at this first thing in the morning. I was looking at stuff that was oversold, trading bounces, other things. I did okay on Roku ( NASDAQ: ROKU ), etcetera, etcetera. But I saw DexCom ( NASDAQ: DXCM ) and I thought, that’s up too much, I am not going to buy it but I really can’t short it either because it is up so much. And then by the time I looked at it several minutes had already passed, I think the stock was already up at 195.00 or so, so I just didn’t catch this trade.

By the way, what do you see here? You see the same type of move that I was talking about on e.l.f. ( NYSE: ELF ), a move higher, a little pullback and then another move. And then after this, the stock is going to either continue up, trade sideways or go down, but you virtually always have this type of a move up.

So here’s the thing, what do we do now? I told you on e.l.f. ( NYSE: ELF ) I would just not even look at it again. On DexCom ( NASDAQ: DXCM ), this thing surprised so many people it wouldn’t surprise me to see the stock move up tomorrow. I would just say this if you are long the stock go ahead and stay long the stock but at least protect yourself on the gap. You could even, if you want to, keep a stop a little bit below 190.00. But the way these gappers have been trading they gap up and then they all keep going for a day or two, so I wouldn’t give up on this stock just because it is up so much. I mean, hey, 27 percent is a big move but it could move more so give it a little room to work.

Also, here’s another thing; you don’t have to sell it all at one time. You can hold the stock and sell half and then let the other half work and only sell it if it is very clear that the stock has rolled over or is rolling over. Right now it is really not doing that. So I think on e.l.f. ( NYSE: ELF ), again, I would stay away from it and on this one, keep a stop here or maybe a little bit below 190.00. As far as buying it right now, I think you are dancing with the devil there. And if you do, again, just use a stop because anytime I see a stock up like this I think, okay, well it might be able to go up more but if that thing starts to roll over we could see a whole lot of selling going on.

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