If you look at the first chart in my public chart list you will see a good example of a bullish chart. The thrust up from March ended on April 7th. Price needed an equal amount of time to work off this move. Price tried to go up on 17Apr but that was too soon. It tried again earlier this week. Now price has worked off time and is in position to move up.
Also notice that price has formed somewhat of a cup-with-handle. I like the Investors Business Daily (IBD) type growth stocks that have a nice run and then consolidate before moving again. I have found that monitoring the timing of the move will increase chances of success when the breakout occurs. Many of the “failed” breakouts of these types for stocks occurred when price tried to move up too soon. Often these stocks will regroup and then take off higher without a “sound” base. It wasn’t price that was the problem in most of these situations. It was the timing of the move.
The IBD method is to wait for at least a 7 week base. This may be a good general rule, but we can time it better by measuring the base against the previous move.
Of course, this isn’t 100% perfect and some stocks or index setups will fail. But I have found that this greatly increases the probability that the breakout will work.
An example of a stock is GOOG with the breakout in 2007. Price tried to move higher and failed until time ran out. Then price was free to move higher. I have seen many charts do exactly the same thing and use it to buy small/mid-cap growth stocks.
Post Modified: July 3rd, 2008 at 12:22 am
Tags: Breakout · Cup with Handle · Growth Stocks · Square of RangeNo Comments
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