שלום בוקר טוב חברים שלי
Shalom and a very good morning to you my friends. Hope you are doing well.
High priced stocks can also moved up very fast in a short period of time. CAR stock did just that. This is what we call a momentum play where the stock can rise very rapidly and the trader can catch the move up for a short period of time. Some of these momentum plays can last from 1 week to a month.
Although CAR's stock price is quite high, one can still purchase shares of it and make some nice returns because it was less than $100. It's not as if the stock was so high priced like Berkshire Hathaway or Google or AMZN that it makes it difficult for traders to enter this stock.
Take a look at the stock chart of CAR, Avis Budget Group. There will be a lot of technical concepts that you will need to learn. But if you learn it, then it is worth while and will help you to spot moves like this in the future. The move that I mention in the title, from $97 to $154 happened when the stock gap up above the consolidation.
There was a shakeout of course, but the stock formed a bottoming tail and quickly moved back up. From there it shot up rapidly. As of today's time of writing the stock has dropped a bit.
The cup and handle pattern is a very famous pattern and if you are a student of IBD's CANSLIM method by famed investor William O' Neil, you will no doubt have come across this pattern. This pattern happens quite often in stocks that set up monster moves and they do happen in stocks that have multi month and multi year climb.
Whether CAR will climb up much more in the coming years I do not know. But for the purpose of momentum trading, the cup with handle pattern do offer some trading opportunities.
I have drawn the cup with handle pattern in Blue Line. As you can see, the stock drop from mid June to July then quickly rise towards August. This forms the cup. It then traded sideways to form a handle of the cup.
According to the cup with handle buy signal, a trader buys the stock when it trades above the handle of the pattern. We can see how CAR gap up above sideways consolidation.
The consolidation or the sideways trading or what we can call the handle was actually trading at a previous high. If you remember your technical analysis, you will know that the previous high once overcome can act as a new support area. That is what happened in CAR where it found support at the previous high.
I myself call this consolidation at support because the moment the stock breaks out of the consolidation there is a high probability of the stock trading higher. Which in the case of CAR that is what happened.
Right at the start of the bullish cross, you will notice that there is a bullish cross. This is my special bullish cross where the 20 MA crosses above the 50 MA. I have often found that big moves happen after the presence of the bullish cross.
During the correction, the 20 MA was below the 50 MA and this signaled that the stock was not in a very good mood for a bullish trend up. But when the 20 MA cross back above the 50 MA, this set it up to be in a good mood to be in an uptrend.
Yes, stocks also have good mood or bad mood. The good mood happens when the stock is above the rising 20 MA, rising 50 MA and rising 200 MA. And both the 20 MA and 50 MA should be on top of the 200 MA. This is the recipe for a nice bullish uptrend.
As CAR rose it stalled around the $120 area. That is ok. As you can see, the stock traded sideways for a few days. This gave it a rest before it pushed higher. Traders sometimes call this the bullish flag pattern.
This is a bullish continuation pattern that is often used by traders to enter a hot stock. You buy the stock when it trades above the highs of the short consolidation. Sometimes you buy it if it breaks below a short term downtrend line in the flag.
I guess it must be confusing but do some homework on the bullish flag or find the article in this website. I think it will do you a lot of good to do some detective work. Not going to hand everything to you so easily. Some hard work goes a long way to help you in the future.
The pole of the flag or what we see as the quick rise from around $97 to $120 can be used as a price target. You simply project it upwards to get a target and today I think it has met the target which is why some selling is happening.
If you take a look at the weekly chart of CAR above, you will notice that the stock rose quite a lot from February to May 2021. The small correction was just its way of some traders or investors taking profits. Some were scared and had to sell the stock. But as you can see, it quickly recovered.
CAR traded sideways near the rising 20 MA. When a stock trades sideways and gets near the rising weekly 20 MA, there is a good chance for it to breakout higher.
Once again let us look at the 20 MA, 50 MA and 200 MA. But this time this is the weekly 20 MA, 50 MA and 200 MA. Notice how the stock was above all 3 rising moving averages when it broke out.
That my friend is a recipe for great stocks.
Hope this helps you.
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