It’s no secret that I am a big fan of charts and technical analysis. They tell us a lot of things, with probably the most important being the right buy and sell points. And when it comes to trying to initiate a position in a stock that’s trading near its highs, that analysis is extremely helpful.
I have never been shy about my love for Teladoc Inc (NYSE:TDOC), the leader in the emerging NexGen trend of telehealth. In fact, I wrote an article that talked about its huge potential just a few months ago. The stock has continued to hit new all-time highs even as the broader healthcare sector has languished, and it has been up 13 of the last 15 days. It has also been in overbought territory for the last two weeks.
All of this is great for current shareholders, but for someone who has yet to build a position in TDOC I understand that it may be tricky trying to determine the right time to buy. Well, let’s talk through your options.
Using the Charts to Time an Entry in TDOC Stock
The traditional route to deciding upon an entry point would be to analyze the fundamentals and determine at what price the stock would be trading at a good value.
Unfortunately, this strategy doesn’t work as well in this scenario because TDOC is not yet profitable and therefore trades at a very high valuation based on traditional metrics. With a stock that is still in its early stages of growth, it’s harder to determine fair valuation. It requires a long-term investing mentality.
That’s where the charts come into play. Based on TDOC’s recent action, it is almost inevitable that it will experience a healthy pullback at some point in the relative near term. That would likely take the stock down to initial support around $47.50, and as long as it holds I would consider this the best entry point.
Of course, there is always a third option. If you have strong conviction in a stock and believe that it will be trading significantly higher months and years from now, you may not care about buying it just a few dollars lower. This eliminates the risk of missing out as a result of trying to time the perfect entry price. In fact, there have been a few times when I have missed out on big winners because the $20 stock only dipped to $19 when I was looking for an $18 buy price.
If I just described you, here is my suggestion regarding TDOC — buy a half position now at current prices, and if it ends up dipping back to support you can go ahead and purchase the second half. This strategy prevents you from missing out on a potentially huge winner, still allows you to time the best entry and eliminates the FOMO — or fear of missing out — that you may be suffering from.
Here is the bottom line — TDOC holds a lot of upside potential, but the odds are high that it will experience a healthy pullback in the near future. Whether you get in now, at slightly lower prices or even just a bit higher, I suspect you’re in great shape for long-term gains.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.