Technical Buy Points for Strong Trending Stocks – TheTradersWire

Technical Buy Points for Strong Trending Stocks


Technical Buy Points for Strong Trending Stocks

If searching for trade ideas, one of the first places to consider looking is at stocks that have significantly outperformed the major indexes over the past six months, the past year or year to date (YTD). This can be done by sorting stocks by performance, from high to low, and then going through the stocks and looking for trade setups. The stocks toward the top of the list will likely be in strong uptrends (although not always, as they may have recently started trending lower), and the setups to watch for include pullbacks that have stalled out. Once the pullback has stalled out or consolidated, showing that selling has slowed, traders can watch for a breakout back to the upside.

RingCentral, Inc. (RNG) stock is up 72% YTD after a nearly uninterrupted run higher between February and early June. Since June, the price has been oscillating in a range. Based on the upside momentum prior to the range forming, probabilities favor an eventual upside breakout. Some traders will be watching for a rally above the $39 high to signal an entry, while others will be watching the short-term descending trendline that connects the June high and July swing highs. A daily close above $36.25 would break the trendline and indicate that the price is heading back toward the high and potentially above it over the longer term. For the latter entry, a stop-loss order would be placed near $34. An initial profit target could be placed at $39, but based on the size of the range (added to the top of the range), the longer-term target is $44.50 if the price moves above $39. (For more, see: The Anatomy of Trading Breakouts.)

Technical chart showing RingCentral, Inc. (RNG) stock in an uptrend near support

Shares of OraSure Technologies, Inc. (OSUR) are up 102% YTD, and pullbacks throughout the year have typically been 10%. After peaking at $19.33 on July 18, the stock has once again pulled back almost 10% and has been consolidating for three days near rising trendline support. Traders will be watching for a rally above the consolidation high at $18.03 to indicate that the pullback may be over. A stop-loss could be placed below the consolidation low. If the price moves slightly lower, before triggering a long trade, it is advisable to wait for another consolidation to form (and then a breakout above it) before going long. The upside target is $20 to $21, based on the size of prior waves and the top of the rising trend channel. (See also: OraSure Technologies in Focus: Stock Jumps 8.2%.)

Technical chart showing OraSure Technologies, Inc. (OSUR) stock in an uptrend near trendline support

DuPont Fabros Technology, Inc. (DFT) stock just pulled back to (near) its descending trendline after reaching a high of $66.18 in late June. The stock is up 44.5% YTD. The pullback in February/March saw the price decline approximately 10%, and the June/July pullback was near that magnitude as well. The price fell, consolidated, moved up a bit, consolidated again and then rallied aggressively on July 31 and Aug. 1. With the initial entry points (at either of the consolidation breakouts) having already passed by, another option is to wait for another pullback to $60. Traders could wait for the price to consolidate and break to the upside, showing that the pullback (if it develops) has slowed and that upward momentum is reasserting itself. For those already in the trade, the upside target is the top of the rising channel at $70. (See also: Opinion: Data-Center Reality Disconnects From Tech Reality.)

Technical chart showing DuPont Fabros Technology, Inc. (DFT) stock in an uptrend near support

The Bottom Line

Looking to top performers for trade ideas can be a rewarding strategy. Top-performing stocks have already shown they can move higher and that there is a lot of buying interest in them. That does not mean that these stocks will go higher forever. Eventually, even strong stocks crack. That is why a stop-loss (or an exit point for a losing trade) must be set prior to the trade. That way, if the trade does not work out, the damage is kept to a minimum. (To learn more, check out: The Stop-Loss Order – Make Sure You Use It.)

Charts courtesy of Disclosure: The author does not have positions in the stocks mentioned.


Published at Wed, 02 Aug 2017 17:00:00 +0000

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