Timing Trades with Bank of America and General Electric

I'm sure you've heard the saying, "Go with the flow". Going with the flow is the path of least resistance. To go against the grain we are fighting an uphill battle.

In trading, we can identify the "flow" as the overall market participants. This is best shown in how the indexes are trading. If all the indexes are green then the longs are probably doing pretty good. If the Nasdaq is red then having shorts in technology would be a higher probability bet.

If we can time our trades to mimic the market then it increases our chance of success.

What is the market doing now?

The market finally pulled back off its highs, seeing the first back-to-back red days in over a month. The pullback was very constructive for the bulls. There wasn't a lot of heavy selling and no real down days. We can see this as a bull flag of sorts.

So how do we find trades to mimic the market?

When scanning for stocks we want to find trades that have been running high but finally pulling back into a bull flag. Two stocks that fit that description caught our eye.

Bank of America BAC ran into $15 and has now pulled back into the $14.70s. This pullback was on low volume and it was enough to get BAC out of overbought territory. These are the things you want to see in an ideal bull flag. The play here is to long Bank of America at $14.76 (over Friday's high) and set you stop at $14.59.

The other stock we found was General Electric GE. GE is exhibiting the same formation as the market and Bank of America. It has a big run into $25 where it proceeded to pull back on low volume. Again, another ideal bull flag setup. GE is a long at $24.70 which is when it comes out of the flag. Set your stop under Friday's low of $24.50. 

If the market makes another run up it will take these two stocks with it. You just increased the probability of your trade being a winner by timing it with the market.