1. As with base breakouts, proper pocket pivots should emerge within or out of constructive basing patterns.
2. The stock's fundamentals should be strong, i.e., excellent earnings, sales, pretax margins, ROE, strong leader in its space, etc.
3. The day's volume should be larger than the highest down volume day over the prior 10 days.
4. If the pocket pivot occurs in an uptrend after the stock has broken out, it should act constructively around its 10-dma. It can undercut its 10-dma as long as it shows resilience by showing volume that is greater than the highest down volume day over the prior 10 days.
5. Pocket pivots sometimes coincide with base breakouts or with gap ups. This can be thought of as added upside power should this occur.
6. 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. That said, bottom-fishing pocket pivots can provide entry points especially if coinciding with undercut & rally formations.
7. Do not buy pocket pivots if the stock is under a critical moving average such as the 50-sma or 200-sma. If well under its 50-sma, and getting support near the 200-sma, it can be bought provided the base is constructive.
8. Do not buy pocket pivots if the stock formed a 'V' where it sells off hard down through the 10-sma or 50-sma then shoots straight back up in a 'V' formation. Such formations are failure prone.
9. Avoid buying pocket pivots that occur after wedging patterns.
10. Some pocket pivots may occur after the stock is extended from the base. If the pivot occurs right near its 10-sma, it can be bought, otherwise it is extended and should be avoided. Give the 10-dma the chance to catch up to the stock, where the stock would consolidate for a few days, before buying such a pocket pivot.
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