How does a stock go from $3 to almost $20 in just a few months. I just thought that it might be beneficial for you my dear reader to take a closer look at how the stock came to be. Here are the technicals you should look out for. And also the things for you to look for to spot a stock like this in the future.
First of all let's take a look at the stock chart of AEHR Test Systems. As you can see the stock was around the $2-$3 range back in June and July 2021. Look at how the stock shot up. Impressive run isn't it?
I guess you can also see there are no fancy indicators on the chart. No need for that to spot a great stock. All you need is some common sense, the moving averages and some knowledge of continuation patterns. Here are the things that made AEHR went up:
If you look at the stock chart above, you will see that the volume was almost non existent until the huge spike back in mid of July 2021. Well there was volume of course. People do trade that thing and buy and sell it. It's just the volume is so small compared to the big spike that the big spike overshadowed everything.
The stock gap up on huge volume. What does huge volume signify? Well when price gap up and there is unusual volume, you can be certain that there is interest in the stock. The next day, the stock gap up once more, this time on even heavier volume.
What does this tell us?
There is some serious buying by well funded and smart buyers. You want to be aware when they take note of a stock. Huge price increase on heavy volume are usually signs of smart money.
There is a saying when the ducks all line up.
The moving averages are a trend following tool. They help you to know when a stock is in an uptrend or downtrend. You can use any MA you want. I like the 20, 50 and 200 MA as they tell me the short, mid and long term trend.
If a stock is above the rising 20 MA, 50 MA and 200 MA then you know that this stock is in a good uptrend.
By the way, the faster MA should be above the slower MA. In the chart above you can see how the 20 MA is above the 50 MA and both of them are above the 200 MA. This is the perfect condition for nice uptrending stocks.
You might have notice that after the large price rise on unusual volume the stock traded sideways a bit. Stocks tend to trade sideways a bit after a nice rise. Or it could just fall down. But if a stock is trading sideways it tells us that it does not want to go down and this is where we start to look for continuation patterns.
It could be any continuation pattern. Just study some and learn to spot them. In this case, the continuation pattern is a triangle type of pattern. When the stock broke out of the triangle it went higher.
Now let's take a look at the weekly chart of AEHR stock. Prior to the gap up on high volume, the stock was trading sideways for a very long time. Stocks that trade sideways for a long time are basing and are in stage 1 of the market. Eventually they might break higher.
That is what happened to AEHR. As you can see the stock was also trading above the weekly 20 MA, 50 MA and 200 MA. In fact it is still above these MA's at the time of this writing whether in the daily chart or the weekly chart. Therefore, the odds of it going higher even further are very good.
Hope you enjoy this lesson and hope this helps you to spot great super stocks in the future!
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