Here’s your trading plan on Wayfair ($W) (October 13, 2020)


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I want to look at Wayfair ( NYSE: W ) here. This is a stock that is in kind of a volatility squeeze here with support, we’ll call it right around 300.00 but you can see it kind of bounces on both sides of that. The real support or magnet, I guess I would say, is the 50-day moving average, the red line.

One way you can jump on a stock like this, with a defined risk where you are not taking too much risk even though the stock isn’t yet breaking out, is to look back a few days and see where the lowest low is; because the idea is if the stock is in kind of a trading range like it is right now, if it’s in a trading range then as long as a stock is in this area even back here, as long as it’s trading in this box it’s behaving naturally. It’s behaving normally because this is the range. It is only when it runs either up out the top of the range or down at the bottom, through the bottom that you would say, “Well okay, this is different, something new is going on here.”

And so if you are looking at a stock this way what you want to see is the shortest box possible. You would like to see it be real long; in other words, it goes back several days or weeks even, but you want to see it be short, it’s a very, very low ceiling; because the idea is if you can buy close to the bottom of the box then you can have a stop in just a little bit below the box. You can have a stop just a little outside the box.

Let’s say you are buying right here and then you are putting your stop, which goes clear back here, you are putting your stop at that level. So if the stock falls out of the bottom of the box that’s when you get stopped out. If it falls back to the bottom of the box it’s okay, it’s just doing what it’s supposed to be doing. Let’s say you are taking a little bit of stock here then you are waiting. The stock goes up to the top of the box and then comes back, oh crap. No, it’s doing what it’s supposed to do it’s behaving normally.

Only when it breaks out the top of the box is it behaving abnormally, it’s doing something different. And so on that “something different” that’s when you take another position, that’s when you add to your position. So you are buying here at least in the bottom half of the box. You are buying here in the box and then you are adding to that when or if the stock breaks out the top of the box, and you have always got your stop just a little bit below the bottom of the box.

That’s how I would trade Wayfair ( NYSE: W ). They report earnings on November 3, which I think is the same day as some other big event, I’m not exactly sure what that is but it’s on my calendar for something else. Anyway, my feeling is it is probably going to break out between now and then and give you a nice gain here; so track the stock and we will see if I am right.

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