Pocket Pivots

Pocket Pivots are described in the book ‘Trade Like an O’Neil Disciple’ of Dr. Chris Kacher and Gil Morales, and are available in both the ChartMill Screener and Charts. A Pocket Pivot is a price/volume pattern that reveals an interest of large players.

A pocket pivot is formed when the stock is coming " … up and off or up and through the 10-day or 50-day moving average, or both in some cases". (Kacher, Morales, Trading in the Cockpit). This setting can be further fine tuned in our Chartmill screener to your wishes and even a threshold can be filled in to clearly define the boundaries of the "up and off" movement around the averages.

Second rule for a pocket pivot is that it must occur " … with a particular volume signature" . The particular volume signature means that the volume of the pocket pivot is higher than the highest down volume in the last 10 days. This rule is automatically included when choosing for a pocket pivot scan in the Chartmill screener.

Pocket Pivot Indicator in ChartMill.

In the charts, the 'Pocket Pivot Overlay Indicator' has two parameters:

  • The length of the SMA from which the Pocket Pivot should originate. Default for this parameter is 10.
  • The maximum offset allowed from this SMA in percent. Default value is 2.5, meaning that the current open should be within 2.5% of the 10 SMA.
Pocket Pivots are highlighted on the chart with a blue dot below the candle showing the pocket pivot. Please note, there’s no exact definition of Pocket Pivots, but there is an exact definition for the volume signature: The volume should be higher than the largest down volume of the last 10 trading days. Below you can see an example of the indicator in a TSLA chart.

Pocket_Pivot_Chart

Pocket Pivots in the stock screener

In our screener, all pocket pivot related filters can be found under the 'signal' field on the Performance tab.

  • 'Pocket Pivot Today' shows all stocks that have a Pocket Pivot in the current or last trading day.
  • 'At least 1(or 2 or 3) Pocket Pivots in the last 5 days' will screen for stocks showing at least 1, 2 or 3 pocket pivots in the last 5 trading days.

Pocket Pivot Guidelines

Pocket Pivots should be viewed with regard to the context in which they appear. Here are some of the guidelines  from Dr. K and Gil Morales:

  • As with base breakouts, proper pocket pivots should emerge within or out of constructive basing patterns.
  • The stock’s fundamentals should be strong, ie, excellent earnings, sales,pretax margins, ROE, strong leader in its space, etc.
  • The day’s volume should be larger than the highest down volume day over the prior 10 days.
  • If the pocket pivot occurs in an uptrend after the stock has broken out,  it should act constructively around its 10dma. It can undercut its 10dma as  long as it shows resilience by showing volume that is greater than the  highest down volume day over the prior 10 days.
  • Pocket pivots sometimes coincide with base breakouts or with gap ups. This can be thought of as added upside power should this occur.
  • Do not buy pocket pivots if the overall chart formation is in a multi-month downtrend (5 months or longer). It is best to wait for the rounding part of the base to form before buying.
  • Do not buy pocket pivots if the stock is under a critical moving average such as the 50dma or 200dma. If well under its 50dma, and getting support near the 200dma, it can be bought provided the base is constructive.
  • Do not buy pocket pivots if the stock formed a ‘V’ where it sells off hard down through the 10dma or 50dma then shoots straight back up in a ‘V’ formation. Such formations are failure prone.
  • Avoid buying pocket pivots that occur after wedging patterns.
  • Some pocket pivots may occur after the stock is extended from the base. If the pivot occurs right near its 10dma, it can be bought, otherwise it is extended and should be avoided. Give the 10dma the chance to catch up to the stock, where the stock would consolidate for a few days, before buying such a pocket pivot.