"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Thursday, February 14, 2013

Potential Swing Trade: Long CIT

Financials are on fire and CIT is in a very promising technical position: whenever a stock reaches key support/resistance levels, it is important to watch how it trades around these zones.Goal is to anticipate a potential breakout, which can lead to strong moves. Note that I'm not trading the breakout itself. I either enter before or after a pullback to avoid volatility.

CIT is in such a position with intermediate-term resistance around $43. The stock has been outperforming the broader market since last August:

Weekly chart of CIT: stock trading at key resistance

The daily chart shows how CIT already took out shorter term resistance at $41 after positive earnings end of January. The stock had to digest two downgrades in the last two weeks but price is still holding up well, so I'm anticipating that CIT can break above $44 in the short-term.

I'm looking to initiate a swing trade on the long side in the next days with a stop around $41.50.The beauty with this trade is its potential position size: theoretically, I could put 30% of my account into this trade to reach 1% portfolio risk. However, my actual size will be smaller to limit portfolio impact, possibly around 15 - 20% of account size, which is still a significant amount:

CIT daily chart: strong buyers are able to keep price up