EarningsBeats.com Digest for May 26, 2021
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When's The Best Time to Trust (Buy) A Breakout?
No matter the chart, industry group, time frame, or market conditions, you should always have a bit of skepticism when it comes to price breakouts. And the reason why is very simple. Market makers have the primary responsibility of obtaining the best price possible for their institutional clients, whether it's to accumulate or distribute shares on their behalf. A breakout can signal that supply has run out and buyers are now outnumbering
sellers. That's obviously bullish. But failed breakouts can signal quite the opposite. Personally, I like to see some sort of base form and the PPO "reset" back to its centerline before the next leg of an advance begins. In the case of Evertec, Inc. (EVTC), I see that a cup formed over several months following an uptrend, allowing overhead supply to be absorbed by buyers:
A basing period of several weeks to months makes a breakout that much more meaningful, in my opinion. I also love the fact that while EVTC consolidated in its cup, its AD line continued rising without much of a pause at all. That suggests to me that sellers may not have been sellers at all. Instead, there was plenty of buying and accumulation. I'd view pullbacks to test the rising 20-day EMA to be solid reward-to-risk entry points.
Just below that moving average should be rock solid price support near 42. Therefore, I'd look for a reversal to take place somewhere in that 42-43 area during any bouts of selling, allowing me to keep a fairly tight stop should the breakout fail.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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