Textbook Bullish Formation Makes KKR a Buy

by Serge Berger | November 21, 2012 1:05 am

Textbook Bullish Formation Makes KKR a Buy

IMPORTANT NOTE: If you are looking for the Trade of the Day, please follow this link: Textbook Bullish Formation Makes KKR a Buy[1].

Serge Berger is the head trader and investment strategist for The Steady Trader[2]. Sign up for his free weekly newsletter here[3].

The S&P 500′s major hammer candlestick, a bullish reversal pattern, coupled with Monday’s follow-through buying (see my market outlook[4]), naturally led me to look for similar patterns in individual stocks. In this case, the pattern was widespread across indices and stocks; however, not all of them developed the pattern right at key moving averages or trendlines.

One stock that did so is Kohlberg Kravis Roberts & Co. (NYSE:KKR[5]). The stock typically behaves well technically, so the textbook behavior displayed in recent days is not entirely surprising, but certainly welcome to those that follow the charts closely.

The rally off the May lows to the September highs retraced by nearly 50% on Friday, Nov. 16. If that does not hold as support, then the next important Fibonacci support level would be 61.8%, which sits at $12.80.

11 21 12 kkr fib 300x214 Textbook Bullish Formation Makes KKR a Buy
Click to Enlarge

More importantly, though, Friday’s low coincided with the 200-day simple moving average, where on the daily chart the stock left a significant bullish hammer candle (like the S&P 500 and many other charts). The combination of a hammer formation at a 200-day moving average makes this stock a great candidate for a bounce.

11 21 12 kkr daily1 300x214 Textbook Bullish Formation Makes KKR a Buy
Click to Enlarge

Despite the high probability setup for a long-side trade, there are two points of concern I must address:

1. Unlike the S&P 500 and many of its sectors and stocks, KKR did not have a green follow-through buying day on Monday, which would have further confirmed the bullishness of Friday’s hammer candle. 

2. None of the momentum oscillators that I follow are showing any positive divergence from price. Many of the oscillators are oversold, but have not yet started moving back up.

Other than that, the setup is ripe for a trade to the upside. An entry between $13.90 and $14.10, with a stop at Friday’s low of $13.60 and a first target between $14.75 and $15 is what I am looking at.

Endnotes:
  1. Textbook Bullish Formation Makes KKR a Buy: http://investorplace.com/2012/11/trade-of-the-day-kohlberg-kravis-roberts-co-nyse-kkr/
  2. The Steady Trader: http://thesteadytrader.com/
  3. free weekly newsletter here: http://forms.aweber.com/form/42/1636996642.htm
  4. see my market outlook: http://investorplace.com/2012/11/daily-stock-market-news-pay-attention-market-throwing-down-the-hammer/
  5. KKR: http://studio-5.financialcontent.com/investplace/quote?Symbol=KKR

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