After Deep Base, Futu Goes For Comeback

Futu had a deep base that would normally disqualify it from consideration. However, if you can find a stock tightening up, that can be a good sign and provide an entry.

Video Transcript

- Well, one high flying growth stock in 2020 that is back in the spotlight today would be Futu holdings. Now, Justin, in February, this stock, basically, went from 200 to 100 in a pretty short period. But it's been on the up and up, and had some nice tire action around its 50 day line, and today, a really big move.

- Yeah, so you know, the thing that would have maybe disqualified us from looking at this too closely before was that this was off 50% from its highs. And usually, when you get those types of deep bases, that's something that we tend to shy away from. Now, when you put it in the perspective of this huge move that it had up to 204, you know, that does seem a little bit more reasonable. I mean, that was-- it kept the bulk of those gains.

So if you were trying to get into this, one of the things that I like to see is a little bit of a calming down. So this is tighter action. Now, let's put this in perspective. For Futu, this is a more volatile stock, and it's calmer action is still movement that can be 10% in a day. So if you don't have the stomach for it, this is not for the faint of heart.

But we did put this on Swing Trader. This is something we were talking about on IBD Live today. I actually added a small position for myself in my own account after the restriction was off on this one, and again, I'm not on large on this. But just to get a piece of this, because this was bucking the trend of weakness. It was looking strong this morning, and it continued to strengthen. And by the end of the day, we were up well over 5% from our entry on what was a very strong day.

- That's right. OK, so if this is the first time it's getting on the radar of an investor out there who's watching this, you wouldn't want to chase it at this point, right?

- No.

- What kind of action would you want to see Futu have from this point to [INAUDIBLE] entry?

- Right, and I guess, my main point here was to just give people a sense of how they might get into something that bases so deeply, you know? Because, again, that's not our norm, so this is more of an educational lesson. It's a little bit out of there now, but I wanted people to know that for the future.

Because guess what? A lot of this stuff repeats itself, so you might say, why do you guys spend so much time on historical charts when you look at a lot of the things that we write about in the paper? And there's a reason for it, because this stuff does repeat.

So right now, I think this is extended, and then probably out of the gate, maybe look for this to get back up to 200. If you bought this, and you get up to 200, I mean, that's a pretty good move and very conceivable that it could do it. But then beyond that, you're going to have to wait for probably a handle, a pullback, and maybe a fresh set up.