Should You Have Been Long WageWorks Today?

WageWorks WAGE is a great technical set-up with one great big red flag - The stock is up +180 percent this year, and +402 percent since May 10, 2012.

WageWorks hasn't closed below its 50-day moving average since the second week of January, and is up-trending in spectacular fashion in the long-, intermediate-, and short-term.

It's simply a rocket ship. But while high-flying stocks are sometimes risky, they can also be great trading opportunities. The strategy with this trade will be get in and out quickly while accomplishing the goal, as time is limited.

Take a look at the daily chart of WageWorks below and notice that the stock tends to make sharp gains during leg ups (neon green lines), before modestly consolidating down after hitting new highs. The stock has been making pretty consistent higher highs and higher lows in the second half of the year, which bodes well for the stock in the short-term. WageWorks has traded just south of $55 on two occasions in the last month and a half, the most recent being last Friday's opening levels. So, while there is some clear resistance at $54.80, this also is a +10 percent upside on a short-term trade to a test of resistance, which is the goal.

WageWorks is sitting at support and looks poised to re-test the $55 area, but it wouldn't be advisable to stick around for too long. The company reports earnings on November 5th after the close, and regardless of your feelings about rolling the dice on earnings, the risk is magnified when dealing with a stock that has gone parabolic. Thus, the time-frame for this trade is limited to 6 sessions, including today. The stop is $47.80, at the low end of support, which is roughly negative five percent (making the reward:risk ratio roughly 2:1).

So, picking up WageWorks at current prices for a run back to resistance around $55 is the goal, taking profits intraday should the move happen. Also, a tight stop at $47.80 would be favorable. Finally, consider selling the position before the close on November 5 if neither the target or the stop has been hit in order to avoid earnings risk.

When to Consider Entering the Trade:
At the current price (~$50.30).

When to Consider Exiting the Trade:
At a close below $47.80 (Breakdown) / An intraday price of $54.75 or above (Profit-Taking)

Disclosure: At the time of publication the editor and affiliated companies own the following positions: None

Note: Positions may be bought or sold while this publication is in circulation without notice.