When we are looking for a great trade, we want a couple key things. A very clear buy or sell signal, big room for the stock to move in one direction or another, and a history of that signal being effective.
I have Dexcom (DXCM) on my watchlist and it has hit two out of three of those requirements and it is just a matter of time before we get the third. Take a look at the chart:
After a long rally through most of last year until just a month or so ago, DXCM has been falling. This is a biomedical device company that make glucose monitors for people with diabetes. The spread of diabetes is at a pandemic level and while Dexcom has been dominate in this space, the field is starting to get crowded. And new drugs are helping people with type 2 diabetes manage the disease and reducing the need for Dexcom’s device.
But this isn’t Dexcom’s first rodeo. We can see how it has responded to big drops in the past as highlighted in the blue circles. This gives us the history of this pattern that has been pretty consistent. It is most effective when it is pushed below a -4 on the MACD. You can also see another key element in that DXCM has room to rally to the upside. When it reverses, it has the potential to rally back to 100 or higher. The only thing it is missing is the clear signal that a bottom has been found than the bounce back up is underway.
To confirm that, we are going to watch for a solid move with at least a couple candles above the 10 day moving average. This shows that the buyer are interested again and momentum is starting. The other sign we will watch for is the bullish MACD crossover. When we see the purple line on the MACD crossover the red line and start heading up that is a time to buy.
For now, we will add this to our watchlist and keep an eye on it. Having a watchlist is another key part of successful trading. It can be a short list or a long list but it should be the stocks you have researched and have a familiarity with their personalities.
Keith Harwood has been sharing a great watchlist he keeps of “Outliers” that many traders overlook. He is revealing a new program that he has created to help traders find these powerful setups on their own. Be sure to catch his webinar this Thursday and register here.
Keep learning and trade wisely,
John Boyer
Editor
Market Wealth Daily
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