Wanna do a little gambling? Here’s your trade on Penn National Gaming ($PENN) (January 05, 2021)


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I want to look at Penn National Gaming ( NASDAQ: PENN ) here. This is kind of an interesting chart here and it’s really kind of a good template for how you would be buying and then adding to a position here. The first entry would be, I know some of you will say right here; if you are going to do that do it right here. None of that is what I am talking about.

The stock was trading a little sloppy here but basically, it was in kind of a cup and handle pattern, and then it started squeezing. So overall what we were having is, within this rectangle, we were having this sideways consolidation. You can see, it was a sideways consolidation pattern and then it finally broke out here. A big breakout right there on high volume and that is what we want to see.

So right here was the initial entry that you would make on your trade. The stock immediately pulled back but it didn’t threaten your stop, wherever you are putting your stop it can’t be tight enough. It can’t be so high that a pullback like this is going to stop you out. You have to have it down, say below here; it’s pretty complacent to keep it below the 50-day moving average but you just don’t want to be too tight.

The point is, you buy the stock, it pulls back a little bit, and then it runs up again. And maybe if you are really aggressive you are buying some more right here because you say, I bought the stock, withstood the first little correction, the first test of the pullback, now it’s moving higher, boom, I will buy more at 80.00. But maybe you didn’t. Maybe you just said alright, I had my initial position, I am just going to hang onto it.

So the stock runs clear up here to $100.00, that’s 25 percent from a breakout at 80.00 but then it pulls back. So maybe you sold some, maybe you sold all but by gosh you are still looking at the stock; because why? Because it’s doing this, a breakout, a little shallow pullback, a big monster move in a short period of time, Merry Christmas, and then a pullback through the new year, and then you get this kind of move to the upside.

So what are you doing now? If you have your initial position, now you are adding to it. It has been a 20 percent pullback, from 100.00 to 80.00. A 25 percent move from 80 to 100.00, that’s math. But now that it has pulled back and it’s running higher. Now you’ve got a different stop here, you’ve got a stop right under here. So you took some stock here, maybe some more stock here, but you didn’t. Finally, you are definitely buying more stock here because the stock is really within an uptrend and that is what we really care about.

So if we take all of this stuff off what we really have is, we’ve got this kind of cup here, right here, this little handle below 80.00, that is actually just slightly higher than this here. This is a really solid cup and handle pattern and the thing that really tips us off that it’s working is when the stock breaks out above the handle volume picks up, and we like that. That’s institutional buying that is pushing this stock up.

Now the stock has pulled back, so what do you think happened here? Institutions stopped buying. Do you know what’s probably going to happen now? Institutions are going to be buying again. So that’s your trade on Penn ( NASDAQ: PENN ). If you are buying it now off of this move I wouldn’t keep a stop below the 50-day moving average. I would be a little more conservative and keep it just a little bit below $80.00, that gives you a pretty good risk/reward profile on this stock.

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