Below are some thoughts on a potentially interesting trade setup that is forming. It brings to life the principles from my post, 'How to Buy Stocks Near Their Lows.'
How To Buy Stocks Near Their Lows
This post summarises the process I use when looking to buy stocks near their lows. It details the lessons I have learned and the framework I use to consistently identify and execute entries at these …
Here we will use RBRK as an example and how to trade it.
What is Rubrik and what do they do:
Rubrik (NYSE: RBRK) is the Security and AI Operations Company. The company’s data security platform secures and recovers data from cyber threats and operational disruptions. Rubrik has been recognised as a Leader in the Gartner® Magic Quadrant™ for Enterprise Backup and Recovery Software Solutions for two consecutive years and is trusted by over 6,600+ customers across the globe, including world-renowned enterprises and government organisations.
Recent Price Action:
The stock is down 44% in the last 6 months and ~32% YTD.
Many people have been trying to time the lows but have found themselves blindly averaging down. However, the events today give two reasons why a tradable setup is forming.
1. A Catalyst
After hours, the company released preliminary results in an 8-K where they revealed that they have exceeded all guidance metrics. The stock was up approximately 5% on this news. Liquidity can be low after hours, so the shares could trade lower during the cash session. Regardless, this is a catalyst that could lead to a near-term low for the stock.
2. A Tangible Level to Define Risk
Today the stock hit $48.58 and then put in a hammer candle to end the session at $51.87. Due to the news mentioned above, the stock rose a few percentage points in after-hours trading. In practice, as long as yesterday's low holds, any initiated position would be "buying at the right side of the V." Conversely, a break to new lows would invalidate this setup, which is why one would place a stop below yesterday's low. In terms of upside targets, the stock may find resistance at the descending 21-day EMA, which is currently $63, and potentially near $71 above that.
Conversely, something to note is that a trade does not exist in a vacuum, so one has to consider the wider picture. Right now, the SaaS sector and the tech sector more generally are under pressure, so being patient is important. This may mean giving it a couple of days to ensure the low is going to hold, or even waiting for the stock to reclaim and hold the 5-day EMA. If considering a longer-term hold, one may wish to wait even longer for shorter-term moving averages to surpass longer-term ones and for a true trend to form before entering.
Summary
Putting that together, you now have a trade setup: a very oversold stock with a defined level of $48.58 to play risk against and a potential catalyst that could bring a tradable near-term low.
As always this is not financial advice. This is just a potential set-up I am watching!
Thank you for reading and see you for the next one!
Added the following as an addendum:
"Conversely, something to note is that a trade does not exist in a vacuum, so one has to consider the wider picture. Right now, the SaaS sector and the tech sector more generally are under pressure, so being patient is important. This may mean giving it a couple of days to ensure the low is going to hold, or even waiting for the stock to reclaim and hold the 5-day EMA. If considering a longer-term hold, one may wish to wait even longer for shorter-term moving averages to surpass longer-term ones and for a true trend to form before entering"