What’s Working Now
One of the most important questions you need to ask yourself to be a successful trader is “What’s working now?”.
Nearly every market has one or more bull markets raging within certain industries and sub-industries. While other stocks are falling out of favor or just stagnating.
You need to be aware of what these industries are. And look for stocks that are setting up in bullish technical patterns within them.
One of the hottest areas of the market right now are Chinese internet stocks.
Our first top pick of 2014 was VIPS, a Chinese internet stock that some would consider the Amazon of China. This stock had one of the highest sales and earnings growth rates at the time.
The stock was in a strong uptrend for a number of years, had formed a bullish double bottom pattern, and was nearing a breakout point as sales and earnings growth were accelerating.
The stock has soared about 200% since we featured the setup.
Another more recent example is Bitauto. We featured this stock in our Daily Alert newsletter back on June 19th.
Stocks in hot areas of the market will break out of bullish consolidation patterns during the bull market. We only focus on the stocks with the strongest earnings and sales growth. And stocks with rising estimates and a tendency to beat those estimates.
BITA had both which is the ideal situation.
So here is an example of what we mean by rapidly rising estimates and an elite growth stock.
BITA had beaten earnings estimates by 1 to 7 cents per share over the past four quarters. Estimates have gone up over 25% over the prior 90 days.
And not a penny going from 3 to 4 cents per share. We are talking 25 cents from $2.33 to $2.58 per share.
Earnings growth had averaged 46% per year over the prior five years. And sales were expected to increase 38% this year and 34% next year. Not 15% per year.
Ideally, we want to see those numbers over 30%.
The chart pattern was a bullish cup with handle pattern within a strong long-term uptrend which is ideal. Here’s how the chart looked when we featured it:
You can see the cup with handle shape on the chart. It can be seen better on a weekly chart and should be viewed there first. Our target entry on this chart pattern is a close above the resistance in the handle.
Soon after the stock broke out the price skyrocketed and nearly doubled in about 2 months. Making subscribers to the Daily Alert a small fortune for those who kept a portion of their shares until the uptrend breaks. A tactic taught in the Daily Alert and the book.
You most often see these kinds of moves in stocks breaking out of strong chart patterns within these hot areas of the market.
Hope that helps clarify what we look for in an ideal trading setup.
Brian C Neall – Founder