If you’re an investor looking for actionable breakout stocks, you first need to locate certain patterns of psychological behavior. IBD calls them bases. Bases provide a technical price area of support and give the stock a point of reference to break out from.
By carefully monitoring price and volume action, investors can learn to master these common bullish patterns, thereby improving their returns.
Breakout Stocks: How To Spot A Saucer-With-Handle Base
Saucers are unique because they often take up to a year or two to mature. That’s much longer than the other base types. The saucer’s shallow and wide characteristics mean that the base-formation process is long and gradual. Rather than scare you out with unexpected action, they tend to wear you out.
The saucer with handle looks similar to a cup with handle except the base stretches over a longer period of time. The depth of the base can still be greater than 33%. But when stretched over a period of years, the decline from the highest price to lowest within the base may appear mild.
Not all saucers require a handle. If a handle doesn’t form, you can use the saucer’s left-side high as your buy point. If a handle does form, add 10 cents to the highest price to find your proper buy point.
Bases with handles tend to have a higher probability of success. The handle provides a downward price drift, or shakeout, to knock out any weak holders. Be sure the handle forms above the stock’s 10-week line.
Saucer-With-Handle Base In Amazon Stock
Among notable breakout stocks, Amazon.com (AMZN) formed a saucer-with-handle base that began building back in July of 2019, according to the MarketSmith chart analysis tool. MarketSmith’s pattern recognition helps investors spot these bullish patterns.
Amazon’s saucer completed formation in January of 2020. Then, Amazon stock proceeded to form a tight handle above the 10-week line (1). The right side peak of the handle, 1917.82, on Jan. 9 of 2020, plus 10 cents shows you a proper buy point of 1,917.92 for Amazon stock. On Jan. 31, Amazon made a breakaway earnings gap on better-than-expected earnings and rose nearly 9% by day’s end.
On a breakaway gap, one could use the high in the first five minutes of trading as an alternate buy point — or at 2,051.47 — and buy as close as possible to that entry.
This article was originally published Feb. 14, 2020. Follow Fox on Twitter at @foxonstocks for more on breakout stocks and market insight.
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