If you missed a big stock on the way up this year, you’ve probably been waiting for it to pull back so you can buy it cheaper.
One of the strongest AI stocks of the year just finally pulled back.
This morning it’s down almost 15%, and the market is sitting at a record high…
It looks like the entry you waited for.
Not so fast.
I’ve bought that entry before on this exact stock, and it cost me.
I’m not buying it again.
At least not yet…
Here’s my plan for the hottest stock of the year.
Sandisk Corporation (NASDAQ: SNDK) is one of the most impressive stocks I’ve ever seen, and it led the market up for most of this year.
It topped out on September 22, at a $1,887.04 close. Invesco QQQ Trust (NASDAQ: QQQ) set a record close the same day, so the stock and the market peaked together.
Two weeks later the market was back at that peak. On October 8, QQQ closed right where it had closed on September 22.
SNDK never came back with it. It closed October 8 down 14.71% from its September 22 close, over a stretch where the index went nowhere.
The index had five red days between September 22 and October 8. SNDK fell harder on four of them:
- September 23: QQQ -0.84%, SNDK -3.73%
- September 24: QQQ -0.01%, SNDK -3.47%
- September 28: QQQ -1.07%, SNDK -3.65%
- October 8: QQQ -1.34%, SNDK -4.90%
It also fell on three of the index’s seven green days. The worst was October 2, when QQQ rose 1.02% and SNDK fell 3.79%.
SNDK has shown relative weakness since September 22, and it could keep falling to its 200-day simple moving average.
Relative weakness means the stock does worse than the index whichever way the index goes. It falls more than the index on red days and rises less than the index on green days, or falls outright.
The stocks that go up with the market have buyers waiting below the current price, so their dips get bought.
A stock that falls while the market rises doesn’t have those buyers anymore, because the people who would have bought its dip are buying the stocks that are going up instead.
So buying the dip is a bet that those buyers come back before the stock falls further.
SNDK goes back on my list the first day the index is red and SNDK is green, or the index is flat and SNDK is up. A stock that holds up while the market sells off is the one buyers are still in, and when the market bounces, that stock goes first.
One day of that isn’t enough. I need SNDK to stop making lower lows and trade inside the prior day’s range for a couple of sessions, so the selling has to prove it’s done.
Then the trade is a break above the high of those tight days, on more volume than the days before it. If that comes two weeks from now at a higher price than today, I’ll pay the higher price.
If you’ve been waiting for this dip, the day to start watching is the first one where SNDK is green and the market is red.
As soon as it does, it goes back on my list with the price that gets me in and the price that gets me out. If it doesn’t, I keep waiting.
In the meantime…
Try this tool to find setups every week.
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
