Lots of Set-Ups Among Growth Stocks

I often write that “XYZ stock is showing a good set-up” or “is set up nicely.”  What exactly do I mean?  That’s a question I’ve gotten a few times during the past couple of weeks, so I thought I’d add some color to it here.

A set-up is simply a chart pattern that often (but not always) leads to higher prices for a stock … all while being just above meaningful support, which allows you to place a tight loss limit after you buy.  Thus, these set-ups offer a good risk-reward ratio—the risk is limited to just a few percent in most cases, while the potential reward is huge, especially if the stock catches fire and the market remains strong. 

These set-ups come in many flavors.  Some are huge base-building efforts over many months.  Some are tight consolidations of three or four weeks after a big-volume upmove.  And some might be formed by just a few days of pullbacks after a persistent advance.

To be fair, these patterns aren’t predictive, per se:  Sometimes the best looking set-ups fall apart, especially if the market gets rough.  But right now, I’m seeing more solid set-ups among growth stocks (my specialty) than I have in a few months, which is encouraging. 

The first example would be MobilEye (MBLY), which, after a big IPO correction, soared for 11 days in a row off the bottom, a sign big investors were finally piling in.  During the past 11 weeks, MBLY has etched three higher highs and three higher lows, and this week, found support near the 50-day line (the smooth blue line in the chart) eek.  A push above 48.5 or so would be bullish, and a stop could be placed just below 45 (where the 50-day moving average stands) if you buy on that breakout—8% risk with the potential for much more upside.


The second example is Tableau Software (DATA), which gapped out of a two-month consolidation on earnings; volume on the gap was the heaviest in more than a year and pushed the stock to all-time price highs (above its March 2014 zenith).  Since then, it’s nudged its way a bit higher, but generally DATA has traded constructively between 108 and 115, catching its breath for another run.  This is a set-up where you could consider buying a small (half of what you’d normally buy, dollar-wise) position around here, maybe with a stop in the 103 to 104 area, below the low of the earnings gap day. And then, you could consider buying a bit more if the stock and market kick into gear on the upside.


Lastly, take a gander at Amazon (AMZN), which gapped to an all-time price high on earnings in April, and has now formed a new base—i.e., a multi-week, calm consolidation that often serves as a new launching pad.  AMZN has even tightened up between 420 and 440 in recent weeks and looks ready to push higher.  A decisive push above 440 looks buyable to me, with a very tight (percentage) stop near 410.


As I wrote above, these (and the many other) set-ups aren’t necessarily telling you the market is ready to get going on the upside.  However, it does say that, if a new rally gets launched, there should be plenty of leadership to sink your teeth into.  No predictions, but make sure you have your watch lists ready!  

Michael Cintolo can be found on Google Plus.

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