Sometimes you can actually come across a stock where the trade is obvious. I don’t necessarily mean obvious to a seasoned trader, I’m referring to a trade that even a new trader can see is obvious. A stock that appears to have that very clear trading opportunity would be that of Gen-Probe, Inc.
Gen-Probe Incorporated is engaged in the development, manufacturing and marketing of molecular diagnostic products and services, which are used to diagnose human diseases, screen donated human blood, and ensures transplant compatibility. Gen-Probe’s molecular diagnostic products are designed to detect diseases and engaged in the categories of the in vitro diagnostics industry. The company markets a range of nucleic acid tests, to detect infectious micro-organisms, including those causing sexually transmitted diseases, tuberculosis, strep throat, and other infections. In December 2010, the Gen-Probe acquired Genetic Testing Institute, Inc. (GTI Diagnostics), a manufacturer of transplant diagnostic products, in addition to specialty coagulation and transfusion-related blood bank products.
Before discussing potential trading opportunities, please take a look at the 1-year chart of GPRO (Gen-Probe, Inc.) below with my added notations:
As you can see from the chart above, GPRO has a very strong support level at $55 (navy). The stock has successfully tested that level 6-7 times over the last 3 months. A trader that might go long at $55 can also see that the stock tends to stall in the general $60-62 resistance zone (red). If the stock were to finally break lower, there is a previous resistance area of $50 (pink) that may come back into play for a long trade.
The Tale of the Tape: The current trading opportunity on GPRO is relatively simple: Buy on a pullback to $55, with a stop place under that level. However, if the stock were to break that $55 level, a short trade could also be made in expectation of a fall to $50.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT