By: Tom Gentile
on May 20th, 2022
When the markets are sliding like they are year-to-date one should work with their financial professional / broker on whether you go more to cash, re allocate your money to a different asset class or consider cost averaging stocks you own.
It’s this last idea that I want to offer some insight to.
Recognize I can’t tell you or recommend to you what to do with your holdings.
I can educate you on some ideas from a technical analysis view that may help you and your financial team with your analyses,
Have an Idea Where Price Support May Be
The markets are tumbling and that, some would say, is an understatement.
When things are breaking down one should look for how much further down it could drop, It’s at that point in time one can ask themselves if they are willing to hold that security even if that happens.
A lot of people say ‘I am in it for the long-term’ then proceed to watch it drop further and or to that price point and still feel anxiety or pain.
If on doesn’t have an idea of a pending or future support price, even with the mindset of being in it for the long-term, they risk the pain becoming so unbearable’ they eventually cut their losses.
Which may have been the best thing to do in hindsight.
Sometimes they sell when that security is (unbeknownst to them) at or testing a price support level,
Of course, they then start kicking themselves for getting spooked out of their position and wish they were still in it.
Again, this is where having an idea where price support is should help avoid that.
Technical Analysis Price Pattern: Old Resistance / New Support
A price pattern that happens and is one I like quite a bit is when a security breaks through a price resistance are and runs higher only to see price retrace to the price resistance area it broke out from.
When that happens there is a chance the stock reacts to that price are as a support level where investors who maybe did not buy the security at that price the last time it was breaking out there feel they have a second chance to now get into that security.
There is also a likelihood that folks that bought in on the breakout last time see an opportunity to add a little more to their position. Another thing is those that bought the security a little later than at the breakout price see an opportunity to cost average in at the breakout price still believing the security is worth holding for the long-term.
All this brings the prospect of the security trading higher in price again.
The below chart is that situation for Kellogg (NYSE: K)
Understand this is for educational and illustrative purposes only and is NOT a recommendation to accumulate or sell the security).
Not only is this NOT a recommendation it may not bounce from its current stock price.
If it does trade higher from here it would be a successful example of showing how this pattern works out and the more one experiences seeing this pattern work, they are likely to gain a strong conviction for it and the next time they see it happen they may be able to act on it versus let it pass them by.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.