Is a GNW Breakout On The Horizon?
A couple days ago, I analyzed the fundamentals and technicals of Genworth Financial (NYSE:GNW) for you.
And given the excitement the first GNW analysis received from you guys, here’s a quick update on the possibility of a GNW Breakout…
“Can GNW Breakout Off Trendline Support?”
One particularly attentive reader, JoePrivate, pointed out on Stocktwits that GNW is coming up on major trend line support. This is something I excluded from my original GNW analysis, so please see the chart below to reference what my new friend is saying…
And looking at yesterday’s price action into the close, GNW might be bouncing after all! Looks good, right? We might be in for a bounce. And by the way…
Let me just say: You’re a clever bunch of blog readers! I’m really lucky to have you thinking critically about my musings, and contributing your own stock ideas so thoughtfully. Thanks Joe Private. Seriously.
But even though GNW appears bullish: be careful playing the breakouts. As the great Scott Bleier says, “Most breakouts fail… until they don’t.”
GNW is coming up on some serious support. And for the most part, even with a month of churning, GNW is dealing constructively with the supply of volume between $8.70 and $9.10, (from last year’s breakdown).
Do you see what I mean?
GNW has turned prior resistance into support, which is always a constructive sign for the bulls. But I get the distinct feeling that to make higher highs in the near term, the stock will have to stretch. And given the increasingly “risk-off” theme in the market these last few weeks, buying GNW here might be a little premature.
Of course, it’s easy for me to say this, since I already have exposure to a GNW breakout. As I mentioned in the last GNW analysis, I do have a small position that I’m planning to hold until GNW hits $14. However, should the stock dip a dollar per share lower, I’ll likely add more. Be patient though. Because it’s just that time of the year.
Seasonality: Possible Headwind to GNW Breakout?
The holiday ramp-up was fun. And January was a blast. So you should not be surprised to see that GNW has enjoyed some massive gains over the last few months. But its April now. And the price appreciation can’t go on forever.
It’s already a new earnings season… at the same time, your taxes are due… (and you just finished paying off the holiday gifts you bought on expensive consumer credit) – surprise surprise – investors are suddenly less willing to pay stupidly optimistic multiples for speculative growth stocks.
I know this seasonality stuff feels a little like witchcraft. So to wrap this up let me clarify where we’re at: While I’m positive on the fundamentals of Genworth, and I realize there’s a technical uptrend that could stay in tact. I’m also saying…
Manage Your Risk On a GNW Breakout!
If there’s one thing I’ve learned trading GNW, it’s that it pays to take profits. And don’t get me wrong…
While I believe higher share prices are on the horizon for GNW, there may be some bumps to endure, too. So here’s what you can do:
You can manage risk by selling a couple hundred shares here and there, whenever the stock goes up 5-6% from your cost basis. C’mon, ring the bell. Put some money in your pocket. It feels good.
And if you do make the mistake of buying back in too high…
It’s not the end of the world. Because we have conviction about eventual higher prices for GNW… (even the possibility of a breakout!) And please remember: you’re only speculating with a small part of your position, within your margin of safety (let’s say as long as you’re buying GNw stock 30% below your target sell price you’re still safe… Get it?)
And that’s how I pad my returns. I’ve had a lot of “luck” swing trading about 2/3rds of my position. And given the strength in recent weeks, I’m looking to reload my shares closer to $8.00 (though my first buys will probably be around $8.45-65)
What’s Your Take On GNW?
Update: Motley Fool has a new article out, entitled, “3 Reasons to Buy Genworth Financial (GNW).” It’s always nice to see your stocks get positive press (even if you’re underinvested). And in fact, GNW has indeed broken out (alongside the major market indices) since this original post – thanks again JoePrivate for calling this bounce!
Update: I wanted to add this new 30 minute chart of GNW to show that any recent attempt at a breakout has faded. Frankly, it would be surprising to see GNW veer higher as the market indices deflate out of control, right?
Aggressive day traders might tempt an entry at this support in the hopes for a slight bounce. But that risk to reward ratio is not exactly favorable, if you ask me. Personally, I’m looking for a little more stabilization (or further price correction) before increasing my exposure to equity in GNW. Patient swing traders will note that there are some significant resistance levels below supported by heavy buyers on the way up. So I’m waiting to see how that plays out — what’s your hurry?