Here's a Breakout Candidate for Patient Investors

Good things come to those who wait.

While this might not always be true in the markets, it can often be true of your trading thesis if you adhere to your rules.

Meta Platforms META hit my screen as a breakout candidate near the end of June. I was looking for the stock to make a new high, hit some resistance around $530 and then hold the 21-day exponential moving average (EMA).

The stock got hit the day after I wrote that. Over the next two days, shares were down 5% and trading below the 21-day EMA intraday. But then, something happened. The stock staged a sharp rally and finished flat on that second day, keeping it above the 21-day EMA, my stop level.

From there, shares held the 21-day EMA again the following day before finding a strong rally last week. META traded above $540, a profit-taking point, and closed exactly at $530 yesterday.

Two days before META, the Financial Select Sector SPDR Fund XLF was another breakout candidate for me. In a similar fashion, it reversed course the two days following my write-up. Momentum appeared to be gone, and the technical outlook shifted toward neutral, but it didn’t hit my sell point of $40.25.

Now, XLF hasn’t rallied to the degree of META. Shares are sitting at the breakout level of late June; however, the moving averages have returned to bullish, XLF is riding the 10-day EMA higher and financials received a lot of love on CNBC yesterday.

The market will get earnings from JPMorgan Chase JPM, Wells Fargo WFC and Citigroup C before the market opens on July 12, 2024, so there is an elevated risk of holding an XLF position. That being said, financials aren’t generally big gappers in response to earnings, so I would continue to follow where the chart leads. If we drop below $40.25, then it is time to exit. If we hit $44, it is time to take some profits. 

Keep it simple and follow your rules.

At the time of publication, Byrne was long JPM and C.