Here’s how I’m setting my stop on Splunk ($SPLK) (February 03, 2020)


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I am looking at Splunk ( NASDAQ: SPLK ) today and here’s why: The stock is in a volatility squeeze, trading pretty tight. You can see $160.00 is really the ceiling for the stock, it first tested it here on the 16th and then a few different times the next day; I guess maybe you could call it this day but it didn’t really hit it, and then the last few days it has kind of been up there. Today the stock finally broke through; I set an alert a while ago to let me know when the stock broke out above $160.00. Frankly, I then forgot all about it until my alert fired off a while ago. You can see exactly where it fired off, about 10-minutes ago.

And so here’s the thing with this; I will just kind of set up a trade for you, earnings aren’t an issue so I am not really worried about that. This is the software index ( BATS: IGV ), I would say it’s one of the strongest sectors going. I like the way Splunk ( NASDAQ: SPLK ) is set up and so this is what I would do: I think you can buy a little bit of stock now, maybe give it about a 4 percent stop. Frankly, I wouldn’t give it more than that unless you just kind of want to buy some stock and hold it.

But from a swing trading standpoint, I would really just want to put a stop below the last several days of trading. If you want to, the low is here is 51.00, I just think, personally, that’s a little bit too much room to give a stock that I am buying on a breakout. I don’t want to be holding a stock that I am buying on a breakout; listen to me, I think this is really important, a stock that I am buying on a breakout, I don’t want to have my stop below the low from the congestion from which the stock is actually breaking out.

In other words, this is the box right here. I guess you could say this is the bottom, actually then this is the top. This is the box that this thing is breaking out of. If I think this stock is going to hold above 160.00 and keep going I don’t want to put my stop clear down here; because the stock doesn’t have to come all the way down here to disprove my thesis. All the stock has to do, frankly, is basically reverse the very, very short-term move it has made. You could even keep a stop below today’s intraday low of 155.00, there’s nothing really wrong with that but since the stock had been trading sideways I thought I would give it a few more days.

The bottom line is, I think this is a pretty good risk/reward trade to the long side even though it’s up a lot but it has been drifting sideways for a while. But the reason I like this trade from a risk/reward standpoint is, (1) the sector is working. (2) the stock is working. And (3) you’ve got a good logical place for a stop to contain your risk.

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