Want to know when the next big move is coming in a stock? It’s not as hard as it might seem to figure it out.
To begin, look to the past. If a big move has already occurred, you could be looking at a good candidate. Next, you want to see that a stock has paused or consolidated for a while so that the moving averages “catch up” to the price action, and can act as a springboard upon which it leaps to the next price level.
- Stocks that have had big moves followed by consolidation patterns are prime candidates for future big moves.
- If a stock has based for a long time period, such as a full year, when it does break above resistance, it can move quickly and furiously.
- A pullback to support is the ideal time to buy a stock that’s breakout out of a consolidation pattern.
Watch Palantir Break Out From Consolidation
Take Palantir as a recent example. In the chart below, you can see the stock surged from around $7 to $14 per share during May. Then for the following 7 weeks it consolidated in a tight range between $14-$17 per share, bouncing up and down without much conviction.
That’s precisely the type of action you like to see if you’re bullish: big surge, followed by consolidation.
The only thing missing is the breakout above the $17 resistance level. And that came on the week of Jul 17.
Now here’s the thing, the moment you see the weekly breakout isn’t the time to buy. You really need to wait to see how the week shakes out.
You need to identify whether it is it a fake move up before closing back inside the channel, or a real move that’s going to gather steam. If it’s a real move, there’s still time for the stock to rally all the way to former highs near $30, so rushing in isn’t necessary.
Another type of chart behavior that should attract your attention is a break above a long-term resistance level on volume that continues to power higher.
Upstart Move Is Fast and Furious
Take Upstart, for example, which broke above long-term resistance at $39 per share on the week of July 10 and powered higher the following week, rapidly rising another 28% in the blink of an eye.
That’s the kind of strength you want to ride if you can grab hold of an opportunity. Sometimes these big moves are so strong and fast, without pullbacks, that they simply block out traders who are looking for a pullback.
When the force behind the trend is this powerful, jumping on board sooner than later is often the best bet as the upside move can be swift, and leave lurkers in the dust.