It can be challenging to remain fully or even heavily invested when the stock market becomes extended. As you lock in profits on your winning stocks, you should be searching for your next trade.
But in an extended market with already narrow breadth, that can be easier said than done. Fortunately, IBD's MarketSmith has you covered for those situations with the Power From Pivot flag.
A Second Chance For CROX Stock
If you're familiar with IBD's eight-week hold rule, then you already know about the Power From Pivot flag. This green flag appears when a stock has risen 20% or more within three weeks of breaking out from a base pattern. ("Pivot" is a wonky term for a buy point.)
You may be thinking, "Wow! A list of winners that I likely missed, thanks." But remember, the flag is alerting you to potentially exceptional winners.
IBD research shows that when a stock makes this kind of powerful move, it is likely to continue higher much more than 20%.
A normal pullback can provide your opportunity to add to a winning position. A pullback to the 10-week moving average is the safest option. If you have particularly strong conviction in the stock, you could also buy off the 21-day exponential moving average or a bullish weekly price reversal.
To find the Power From Pivot list in MarketSmith, start with the list panel in the bottom-left corner of your charts.
Click "Reports" then "MarketSmith Growth 250." From there, select the folder named "G250-Pattern Recognition" and scroll until you find the Power From Pivot list. It's best to sort the list by Weekly Pivot Week to find the stocks that haven't gone up too much. A first- or second-stage base is preferable.
An 18-Month Climb In CROX Stock
By the way, Power From Pivot flags are plotted on weekly MarketSmith charts at the week the stock reaches the 20% jump from the buy point.
Crocs had a meteoric rise following the lows of the Covid bear market. In May 2021, a full year after retaking the 10-week line, CROX stock was still going strong.
It climbed 27% shortly after a six-week consolidation that formed in March and April (1). The fast start was plotted in MarketSmith (2). With the green Power From Pivot flag, the eight-week hold rule was triggered. Crocs then formed a five-week flat base (3).
You could have purchased additional shares at the 109.91 buy point (4), or a few weeks later when it found support at the 10-week line around the same level (5).
From the second flat-base entry, shares peaked in September with a 48% profit (6). Crocs finally began to roll over in early October. The decisive sell signal came when it closed more than 2% below the 10-week line for the first time in 18 months.
