Pocket Pivot - A favorable early-entry buy point


The pocket pivot concept is, in essence, a favorable early-entry buy point in a stock. Buying pocket pivots are to our advantage because they get us into a stock early often before it breaks out of its base. It also enables us to add to a position in a winning stock as such stocks often have multiple pocket pivot points as they move higher.

The basic premise of the Pocket Pivot:

  • Institutional Buying creates new-high base breakouts, but we also know that institutional buying occurs within consolidations and during uptrends.

  • This buying within consolidations and uptrends in most cases leaves price/volume "footprints".

  • The pocket pivot describes that "footprint," and provides a clear, buyable "pivot point," or "pocket pivot buy point."

  • Pocket pivots also provide a tool for buying leading stocks as they progress higher within uptrends, extended from a prior base or price consolidation.

Ten Rules for Pocket Pivots

  1. As with base breakouts, proper pocket pivots should emerge within or out of constructive basing patterns.

  2. The stock's fundamentals should be strong, i.e., excellent earnings, sales, pretax margins, ROE, strong leader in its space, etc. 3.

  3. The day's volume should be larger than the highest down volume day over the prior 10 days.

  4. If the pocket pivot occurs in an uptrend after the stock has broken out, it should act constructively around its 10-dma. It can undercut its 10-dma as long as it shows resilience by showing volume that is greater than the highest down volume day over the prior 10 days. 5.

  5. Pocket pivots sometimes coincide with base breakouts or with gap ups. This can be thought of as added upside power should this occur.

  6. Do not buy pocket pivots if the overall chart formation is in a multi-month downtrend (5 months or longer). It is best to wait for the rounding part of the base to form before buying. 7.

  7. Do not buy pocket pivots if the stock is under a critical moving average such as the 50-dma or 200- dma. If well under its 50-dma, and getting support near the 200-dma, it can be bought provided the base is constructive. 8.

  8. Do not buy pocket pivots if the stock formed a 'V' where it sells off hard down through the 10-dma or 50-dma then shoots straight back up in a 'V' formation. Such formations are failure prone.

  9. Avoid buying pocket pivots that occur after wedging patterns.

  10. Some pocket pivots may occur after the stock is extended from the base. If the pivot occurs right near its 10-dma, it can be bought, otherwise it is extended and should be avoided. Give the 10-dma the chance to catch up to the stock, where the stock would consolidate for a few days, before buying such a pocket pivot.

Our studies of pocket pivots indicate that a pocket pivot buy point which results in an uptrend that is shown to obey the 10-day moving average for at least 7 weeks following the initial pocket pivot should be sold upon its first violation of the 10-day line. A “violation” is defined as a close below the 10-day moving average followed by a move on the next day below the intraday low of the first day.

http://www.aaiilosangeles.org/SkirballPresentations/Morales&Kacher091110.pdf

https://youtu.be/NNcAG-PylxU


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