Trading stocks is hard, and I won’t even pretend to have just a few of the answers.
However, years of observation of big winning stocks has uncovered a pretty strong indicator of future strong performance.
It goes like this…
I have observed that many stocks that embark on a significant run over the course of at least six months will often tip their hand right when they are ready to move.
Here are the characteristics:
- These stocks will often break out of base, or trading range, that was formed over the preceding six months or more
- The stock will close higher on the session by at least 8%, and usually more than 10%
- This move higher is accompanied by unusually high trading volume
Here is an example…
I am not a quantitative analyst, but I would venture to guess this information is already known to institutional investors.
In December 2022, POWL broke out to a new 52 week high. The stock gapped above the high of the previous day by $5, and closed higher on the session by nearly 20%. The trading volume that day was the highest in 10 months.
As you can see, POWL has been a strong performer ever since.
IONQ is another, more recent example.
At the end of March, it traded to a new high dating to September 2022. The stock closed higher on the day by 21% and the trading volume was the highest in the history of the stock, which dates back to January 2021.
Now, as you can see, IONQ didn’t do much for then next six weeks or so, and didn’t make a new high until mid-May, but it has been on a tear since.
With this in mind, you don’t want to just run out and buy shares every time you see this occurrence.
However, it is a good idea to put these stocks on a watch list for a future trading opportunity.
If you can catch one or two of these moves each year, and invest wisely otherwise, you should be able to trounce the S&P 500.
But, it will take a good bit of work and study.
My newsletter, Scott’s Intel, will provide commentary on such opportunities as they present themselves. Learn more here.
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