The debate of "chase or wait" will be around as long as trading itself. I think you can also add in "anticipate or wait." Medtronic (MDT) falls into that anticipate or wait category, well, the daily chart does. The stock looks to be knocking on the door of a potential breakout. The questions for traders, however, is will waiting for the breakout confirmation mean missing too much upside?
MDT Daily Chart
Source: StockCharts.com
View Chart »View in New Window »
To kill the suspense, I think you have to wait here. Medtronic does look bullish, but it's bounced from $74 to $79 without any rest. This is a solid double top and if MDT can get a close over $79, then a push into the $82-$84 area should come quickly. The first test of a double top can be difficult for many stocks. A pullback to the $77 area followed by another retest of $79 would be ideal. I could even justify buying the first bounce of a dip using a tight stop.
We are seeing a decent push in momentum as the relative strength index (RSI) has moved over the midline (50). Meanwhile, we have confirmation from the volume/price side of the equation plus momentum. Both the Chaikin Money Flow (CMF) indicator and Chaikin Oscillator have crossed into buying territory. I use slightly different settings on each, but like to watch for simultaneous crossovers in both. This is an indicator that money flow is lining up with momentum. I'd prefer to avoid any divergences to the bearish side when looking for a breakout. So if looking to buy a pullback, I would keep an eye all three of these indicators to make sure none crosses back over bearishly.
MDT Weekly Chart
Source: StockCharts.com
View Chart »View in New Window »
I was a bit hesitant with the price pattern as it is a descending triangle. This isn't usually associated with breakouts. However, in looking at the weekly chart, I can note three times since 2013 where the weekly price pattern was a bearish megaphone pattern and every time the stock broke higher rather than lower. Also, the current longer-term price pattern looks to be more of a flag here, so a pullback to the $74-$75 area does not negate the longer-term bullish view. On the weekly chart, we've actually seen the pullbacks in the RSI and Chaikin Oscillator, but both are still bullish. A close over $79 on the weekly chart would be very strong. As it stands, even a close over $78.40 looks like a breakout.
For those relying on a daily chart, Medtronic looks like a "wait" rather than an "anticipate." However, the weekly chart looks buyable here. It all comes down to time frame. If your time frame is short term in nature, then waiting is the best bet. If Medtronic is a six-month or longer type of position, then it looks buyable at these levels come tomorrow with a stop set around $72.50 on a weekly closing basis.
At the time of publication, Collins had no positions in the securities mentioned.