A buying opportunity in a consumer stock with a long-term bullish trend, according to the charts
I’m always on the lookout for stocks with ideal technical set-ups, and my favorite one is a chart with a long-term uptrend and short-term pullback. This set-up has been proven to be so profitable that most institutional quantitative models include a momentum factor usually called “12-1 momentum”, basically looking for stocks with a strong 12-month return and a weak 1-month return. I actually call this setup a “fat pitch” chart. In baseball terminology, a fat pitch is a fastball right over the plate, and no matter what the count is, you’re swinging at that pitch because it’s highly likely you’ll be able to get the ball in play. So when a chart is in a primary uptrend, and then has a decent pullback to make a higher low, this fat pitch chart can often provide a fantastic “buy on the dips” opportunity. We may be observing that particular setup this week with Crocs, Inc. (CROX) , which has shed about 12% from its peak in mid-June. After making a new all-time high around $165 a couple weeks ago, CROX pulled back to an ascending 50-day moving average, a level that often serves as support within primary uptrends. Going back to the November 2023 low, we can see that CROX has had a number of pullbacks to the 50-day moving average and that after briefly breaking below this smoothing mechanism, the price has tended to recover and make a new swing high. We can also see that the RSI is currently just above the 40 level, which tells us that the price momentum remains fairly bullish despite the recent price pullback. The bottom panel shows a relative performance line, tracking the performance of CROX versus the S & P 500 index. With the relative line sloping gently higher since the November 2023 low, I can confirm that this stock has been a consistent outperformer. And if I have a chance to buy into an outperformer as it takes a pause in the uptrend, that’s a chance I certainly could be willing to take. A brief trendline analysis also suggests that we may be at an ideal entry point. The price lows in November and January line up fairly well with subsequent lows in February, April, and May. And that trendline comes in right around where CROX has been trading this week. We can also note that this week’s price action is right at the early June low as well as the peak from late March, forming what’s called a “pivot point” that has been tested and confirmed numerous times in recent months. If you find yourself struggling to buy breakout names, because it feels like you may have already missed the best part of the move, then a pullback name like CROX could be a much better fit for your investment approach. Even the strongest uptrends have pullbacks along the way, and they can often result in ideal entry points to participate in the next leg higher. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
