Gap, Inc. possible upward reversal
Gap, Inc., famous for its sweatshirts and related apparel, has a 2-year breakout.
It means that its stock price is now higher than any time in the last two years. That is a strong indicator for a new uptrend.
But… should we not buy low, sell high?
Absolutely. If this is a new trend starting, then we already missed the start – because there was no way of knowing about it.
Let’s look at the historical price trends:
Gap, Inc. has been in a major downtrend in 2015 and the first 8 months of 2016. It switched from side to uptrend in October 2016 – but it did not happen. Its price never exceeded its highest price in 2016.
Are there additional signs of an uptrend?
Yes. There has been a cross-over between the long-term and short-term trend lines. But it has happened several times before, so it’s not a very strong indicator by itself. Combined with the breakout indicator though, it supports the possibility of a new uptrend.
What about finance data?
It’s OK. Nothing too impressive but they are doing fine. Slight downtrend annually, but small uptrend quarterly.
What if it’s not happening?
That’s always a possibility. Set your stop price accordingly. New breakouts can be volatile, so I suggest at least a $4 trailing stop.
Here an example for a trade with a $100,000 portfolio value:
All calculations are based on a 100k portfolio value, so plug in your own number for that.
- Risk: 1% of 100k = $1,000
- Stop Price: $25.02
- Trailing Stop Distance: $4.50
- # of shares = Risk / Trailing Stop Distance = $1,000 / $4.5 = 222
- Cash needed = 222 x 29.52 = $6,553.44 (est.)
Will that work? If I was sure I would not set a stop price 🙂