If you study technical analysis theory, two patterns rank among the most popular and successful: the head and shoulders pattern and the base and break. So to mix things up today, we scoured through hundreds of charts to find three stocks that could be on the verge of huge breakouts.
It’s rare for Warren Buffett to buy a pre-IPO stock but that’s exactly what he did with Snowflake, and it worked out marvelously well at first as Snowflake share price peaked above $400 per share.
Now down under $200 per share, the share price looks like it’s been meandering in a relatively narrow range for months. But that’s the kind of price action that a technical analyst who likes to bet on base and breaks wants to see.
If Snowflake closes above $197 per share, expect a ferocious rally to the upside after spending most of the last year basing.
Another attractive technical analysis pattern, the head and shoulders pattern, is popularly traded by waiting for two shoulders and head to form, which then signals a lot of downside risk. What few traders pay attention to is the inverted head and shoulders pattern whereby a lot of upside potential exists when the neckline is broken with a bullish surge.
Take Sweetgreen, for example, which had a phenomenal debut when it came public with price soaring above $50 per share before plunging into the teens and below to the single digits. But now, it’s making an approach to a neckline, which if broken, could signify a bull run is on the cards back to the $20 range.
A break and close above $11.50 per share would be the sign that a bull run could is on the horizon.
Lastly we take a look at Baidu, which has produced a chart pattern that looks similar to Sweetgreen, if not more impressively printing an inverted head and shoulders pattern.
Famously, Baidu was caught up in the pandemic era stock craze when companies virtually went to the moon but the crash back to earth was met with a thud and the share price dropped by about 70% in the intervening years. More recently, it has stabilized and formed an attractive looking pattern.
The sign that a bull run is starting is a break above $155 per share.
How To Trade These Stocks
When you study poor traders versus great traders one primary characteristics separates the two. The great traders stick to the rules. The poor traders anticipate what they hope will happen. So how does that apply to the breakout candidates above?
If you bought these stocks before they broke out you would certainly make more money than if you bought them after they did so. A poor trader will buy in the hopes of the breakouts occurring. But a great trader will wait patiently, knowing that when the breakouts do occur there is still lots of money to be made.
So, if you want to trade these stocks, put them on your watchlist and keep an eye on the trigger points listed. Only when they have been eclipsed is the time right to pounce. Until then, stay patient, and watch, and wait, like a predator. Pounce when the time is right. Jump too soon and the prey can escape, or in this case, the profits.