I am always looking for stocks with the ideal technical setup, and my favorite is a chart with a long-term uptrend and a short-term pullback. This setup has proven to be so profitable that most institutional quantitative models include a momentum factor, usually called “12-1 momentum,” and I’m basically looking for stocks with high 12-month returns and low 1-month returns. I actually call this setup a “fat pitch” chart. In baseball terms, a fat pitch is a fastball that goes right over the plate, and no matter what the count is, you swing at it because you’re likely to hit the ball. So when the chart is in a major uptrend and then makes a higher low with a good pullback, this fat pitch chart often provides a great “buy low” opportunity. This particular setup can be observed this week with Crocs, Inc. (CROX), which is down about 12% from its mid-June peak. CROX made an all-time high around $165 a few weeks ago before pulling back to its rising 50-day moving average. This level often acts as support within a major uptrend. Going back to the November 2023 lows, CROX has been pulled back to its 50-day moving average multiple times, and we can see that after briefly falling below this smoothing mechanism, the price tends to recover and record new swing highs. We can also see that the RSI is now just above the 40 level, which indicates that the price momentum is quite bullish despite the recent price pullbacks. The bottom panel shows the relative performance line, which tracks the performance of CROX and the S&P 500 index. The relative line has been rising gently from the November 2023 lows, confirming that this stock has been a consistent outperformer. And if you have an opportunity to buy a well-performing stock when the uptrend is taking a breather, it’s definitely an opportunity you’d be happy to take. A simple trend line analysis also shows that you may be at an ideal entry point. The price lows in November and January line up pretty well with the subsequent lows in February, April, and May. And that trend line is right around where CROX is trading this week.It is also worth noting that this week’s price action is exactly halfway between the early June low and the late March peak, forming what is known as a “pivot point” that has been tested and confirmed many times in recent months. If you are struggling to buy breakout stocks because you feel like you’ve already missed the best part of the move, pullback stocks like CROX are a great fit for your investment approach. Even the most powerful uptrends have pullbacks along the way that often serve as ideal entry points to participate in the next phase of the upswing. Disclosures: (None) All opinions expressed by CNBC Pro contributors are the contributors’ own opinions and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliated companies, and may have been previously disseminated by the contributor on television, radio, the Internet or other mediums. The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for full disclaimer.
Charts show a buying opportunity in consumer stocks that are in a long-term bullish trend
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