How To Use Pivot Points In Your Trading

While earnings reports, interest rates, geopolitics and the usual array of fundamental factors at play in the markets continue to roil stocks, the October uptick in volatility has traders across the market checking and rechecking price levels on their watchlists.

For fundamental traders, the plotting and forecasting inherent to technical analysis can occasionally seem like mapping astrological star charts. However, underlying the trend lines and chart overlays are formulae built on the premise that markets are ultimately influenced by patterns. One of the most critical aspects of these pattern trends are pivot points, the price at which a stock’s trend is most likely to change based on the price range and support and resistance levels a stock has recently seen.

Luckily for fundamental traders with an interest in technical trends, stock research platforms often provide tools to help easily sort through the more esoteric aspects of technical analysis. Using the tools found on research site Finscreener, we can break down some of the technical factors that might be driving a few of October’s most volatile large-cap stocks and discover where each might find its next pivot.

Boeing

Among the strongest names going into the month, Boeing Co. BA stock gained and lost nearly 10 percent during the October selloff. The stock’s moving average convergence/divergence (MACD), a measure of volatility and trend, shows the stock’s near-term momentum crossing into the negative under its 26-day moving average. What’s more, the gap between the short and long-term moving averages that constitute MACD have diverged widely thanks to the selling pressure in Boeing and many other industrial names.

While the trend doesn’t look to favor Boeing at the moment, if we switch over to Finscreener’s pivot point calculator we can see that the stock’s current price is actually sitting just above a mid-term pivot point at $353. The stock last hit that price mid-September before going on a 3-week uptrend to new highs, Should that same pattern play out again, look for resistance near the low $360s. If the chart breaks down further, old support suggests a $338 support level near the stock’s September low.

Netflix

Unlike Boeing, Netflix, Inc. NFLX actually found its upside in the midst of the October volatility as a result of strong earnings. However, even that did not make it immune to the selling pressure that’s still exerting itself on the market. A good way of visualizing the huge price swings Netflix has seen is through Bollinger bands, which shows the range price deviation above and below a stock’s moving average, usually 20-days.

The amount of shade between the high and low ranges provides an indication of the magnitude of the stock’s fluctuations, the wider the disparity in the top and bottom bands, the more volatile a stock has been trading. Again, taking a look at the crucial levels to which Netflix might be drawn in the medium-term, it seems there is support around $315 where the stock bounced in mid-August and again earlier in October, with $337 acting as a pivot point above that floor. The nearest resistance is at the peak of the most recent spike, around $365.

Pfizer

Finally, Pfizer Inc. PFE might have the most bullish trend coming out of the past few weeks. Not only is it only less than 5 percent off of its all-time high (an impressive feat considering the broad market is down 6 percent from its high), but it’s also forming a bullish pattern called a cup and handle. A cup and handle formation is characterized by drop, a brief bottoming out, followed by a continuation of the uptrend with a slight consolidation, which you can see starting near the big sell-off.

Currently, Pfizer is on trend to meet resistance just shy of its recent high at $45.50, with a critical pivot near around $44.20 where it stalled coming into the month.

Technical analysis has many different dimensions, and even pivot points can be plotted using other indicators, like Fibonacci pivots. Technical analysis relies on pattern repetition, and each form of analysis and every indicator will put greater or lesser emphasis on a piece of historical information. Traders interested in expanding their technical knowledge, especially as 2018 continues to surprise, should tool around with as many technical metrics as they can.

Finscreener is a content partner of Benzinga.