A Great Swing Trading Pattern for the Coming Week
This year, we have seen several swing trades make huge moves out of a classic chart pattern in our newsletter.
The first stock to soar out of this pattern for customers and in our own trading was HA. It hit our entry point after another big earnings beat in January and then soared nearly 50% within a few weeks.
Several weeks later we featured US Steel, (ticker X), in the same chart pattern breaking out. X quickly moved about 20% higher within a few days after being featured in our newsletter, later moved nearly 40% and is still surging after recently hitting another entry point in this chart pattern last week.
And another great swing trading setup just came up on our radar in this same chart pattern that I am about to share with you.
But first you need to know the chart pattern because there is not a lot of good information on this one online. Yet it often precedes some of the biggest moves on quality small and mid cap stocks.
This chart pattern is called the bullish inverted J pattern. Sometimes called the inverted ascending scallop.
Its one of the most bullish swing trading setups top traders look for so its good to know the entry/exit points that other traders are using.
You often see it early within a new uptrend for a stock or ETF. Look for them in leading stocks in strong industries.
This week we found one for the 3 Stocks to Wealth newsletter and Daily Alert. A monster pattern in a red hot industry. But today I want to share with you another one, in the tech space, that is looking excellent for several reasons I am about to explain.
This gives you a great example of how we get an edge in our trading.
The stock is AMBA. The same stock that made a 60% move for us within a month out of an ascending base pattern last year. After exiting the trade, the stock corrected with the rest of the market.
The first reason I like this trade so much is that its been a top growth stock in the past and has a history of crushing earnings expectations. AMBA has seen revenue growth in the mid double digits over the past few years. Net income, year-over-year, has been growing about as fast. Top growth stocks normally have sustained growth in sales and earnings of at least 15% per year for a number of years. The higher the better.
According to Yahoo Finance, they have beaten consensus earnings estimates by 6 to 22 cents each of the past four quarters. This is another key differentiator. A stock has to be a top growth stock or have a track record of beating estimates with rising future expectations for our own swing trading and our newsletter. Expectations have gone down slightly for next year recently, but its a top growth stock that has the consistent track record of clobbering earnings estimates.
Lets take a look at the chart:
Swing Trading Setup – Bullish Inverted J Pattern
From a technical standpoint, this trading setup is also superior for a few reasons. First of all, the stock is in the strong inverted J pattern and is above its 20 day, 50 day and 200 day moving averages. Its also making higher highs and higher lows in a new uptrend.
The first move in the inverted J pattern was on strong volume. And the pullback retraced a smaller portion of the first move higher than most of these setups. The pullback was on lower volume and the Brexit mini-crash took out a lot of weak hands.
Notice how the pullback stopped at about the 20 day moving average which is acting as support. The price then broke out of the top of the pattern and has now pulled back while respecting the 9 EMA (exponential moving average). Its a good sign when a stock is trading above the 20 day and 200 day averages and suddenly finding strong support at the 9 exponential moving average.
I also like that the price closed strongly on Friday after another test of the top of the prior consolidation as the market digests recent gains. Another good sign.
Another positive is the overall market and Nasdaq being in an uptrend and the S&P 500 breaking out of a 2 year trading range. So the overall market trend is in our favor as well.
This one is set up to break strongly into new 2016 highs off the 9 EMA if the overall market continues to trend higher. If the market pulls back, then we will probably see it rebound off the 20 day moving average before making another move.
We will likely put a buy stop a little above $56 and it should quickly move to $60 or beyond if it gets to that point. $67 seems a likely final target over the next several weeks. This is a 1 to 1 projection of the first move higher and corresponds with the top of a consolidation last March.
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Am I mistaken or is the inverted J set-up currently taking place in AMGN?
Yes, we just saw a small bullish inverted J pattern breakout on AMGN. The biotech index broke out strongly last week. We mentioned CELG early last week and its now broken out of a flat base. VRX broke out of an explosive bottoming pattern and has already made a 20% move higher.