As I sip my double shot espresso here in John Wayne Airport in Santa Ana, CA, waiting to go home to the swamp that is Montreal lately, I figured I could share a recent buy with you all and how I set up the purchase of $EVR.

 

EVR turned up in my screens at the beginning of the rally in July while building what seemed like the right hand side of a general consolidation. Therefore it went into my buy list. (Probably was the WON screen that got it, or the good accumulation).

 

Looking closer at the daily chart above, you can see that the consolidation is indeed forming an interesting pattern of smaller and smaller corrections in price, lasting a quarter and a half.

 

From left to right, the base contracted from 44.53 to 34.75, then 42.36 to 36.31, then 41.27 to 35.90, then 40.71 to 37.87 and finally 40.22 to 39.07 for a total of 5 contraction. 

 

Thus each contraction percentage-wise was 22%, 14%, 13%, 7% and 3%. Note that that last two contractions were about half the previous, which is constructive as it shows more and more agreement in price. This also followed by good accumulation in the base while also offering enough dryup on the downturns to prove that sellers were running out. This is further quantified by the very positive up/down ratio and accumulation/distribution rating and the occasional shakeout within the base.

 

Looking at this one would usually buy at the main pivot of 44.53 but we can do better than this while not being too risky in a rally. We can actually buy at the breakout from the last contraction which was 40.22, a whole 10% lower!

 

I don't like to risk more than 8 % per stock which should represent a maximum of 1-2% of my total portfolio (this is my unit of risk, or 1R). From this knowledge you can calculate how many shares to buy by taking 8 percent of the current share price and dividing it by your total allowable risk. Say I want to invest 10k$ with 800$ risk, this equates to ~125 shares. This 8 % also jives with the 50 SMA and three times the 14 day average true range, so this asserts that this risk profile is likely to be correct.

 

My target profit can be assumed to be about 20% from the 44.53 pivot (a good base run usually goes 20-24%) plus the 10% I gained from buying early for about 30%, which gives me potential gain of 3.75 times my unit of risk, or 3.75R. 

 

Since this ratio is much greater than 1, this is a very good buy.


I always set my trailing stop to my unit of risk and let it ride. If the market gets wonky I can always tighten it or get out completely.

 

Alas, do to day-job interruptions, I bought a day late, but I'm still riding on a nice 8% gain so far and it's still in the main pivot range.

 

Have a great weekend!

@RocketPower (Twitter)

@RocketPowerYUL (Stocktwits)