Look for Primary Base Breakouts
A primary base is the "first" consolidation pattern that leads to the beginning of a new trend. Primary base breakouts often occur in new, "hot" stocks with a new product or service that hits the marketplace.
IPO stocks are a good place to look for primary bases. IPO base breakouts provide an opportunity to buy a stock near the beginning of the trend, one the major trend trading principles.
A primary base can also form when a trending stock falls out of favor and is sold off. After the stock declines, it may establish a new support level, consolidate, and eventually begin a new uptrend breakout. This scenario usually occurs after a market correction.
Authohome (ATHM) is a good example of a primary IPO base. The stock was released in December, 2013. The stock initially fell in price, but then it bounced up and down twice before settling down and finding support in February, 2014. ATHM broke out in late February, making a new all-time high.
To be valid, a primary base breakout should make a new 52-week high or all-time high on strong volume. In addition, the stock should meet other criteria that would support a new trend, such as strong earnings, a price above $10, and an average daily volume of greater than 100,000 shares. Also, look for primary bases in strongly performing economic sectors/industries.
Important Disclaimer:
The information presented in the Stock Pick of the Week is for informational purposes. The information was based on data and charting programs from independent services and CC Trader LLC d/b/a TradeLikeaPro does not guarantee the accuracy of the information used in the analysis of securities presented. The information is not offered as a basis for making trading decisions based on securities presented. Investors and traders should conduct their own independent research before making any investment. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Investing and trading involves risk. Before deciding on any investment, you should consider your investment objectives, level of experience, and risk tolerance. Do not trade with money you cannot afford to lose. You should seek investment advice from a professional investment advisor before engaging in investment activities.
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