Category: Market Insights

Here are five of the best-performing stocks for the past 3 months:

AKAO +347%

CALA +254%

ESPR +196%

TELL +189%

AAOI +115%

What did they have in common?

1. All of them started their move with a huge volume range expansion. We are talking a 8% price gain on at least 10X their average daily trading volume.
2. All of them offered several secondary entry points – after their big range expansion, they had one or more periods of range contraction, followed by another range expansion.

Position traders look for big 50% to 200% multi-week moves. Swing traders look for hundreds of 5% to 20% short-term moves in a year – those moves typically last between one and 15 trading days.

If you are a position trader, you should be looking for huge volume range expansions in bull markets.

If you are a swing trader, you should be looking for range contractions in stocks with an already established price momentum; stocks that started their ascent with a big-volume breakout and kept going higher.

Some patterns tend to repeat over and over again but they don’t work all the time. Not working all the time is a prerequisite to being profitable over time. The trick is to know when they are more likely not to work.

I talk in more detail about the above-mentioned setups in my book:

Top 10 Trading Setups: How to Find them, When to Trade them, How to Make Money with them

 

29 stocks went up more than 1000% in the past decade. One of them is an airline. I guess going to Hawaii has been really popular. Seven of the top ten performers are Internet stocks. The other three are biotech companies. It was the decade of Internet and drugs.

What do all of the above stocks have in common, other than being able to grow their earnings and sales in an impressive manner? They spend a lot of time on the 52-week highs list and set up multiple times.

The U.S. stock market indexes bottomed on March 9th, 2009. A couple days later, two stocks broke out to new all-time highs. Both of them went up more than 10x after their breakouts. One was Green Mountain Coffee Roasters, which was acquired in 2015. The other one was Netflix. Netflix went up 44X in the past decade and today it is a 62-billion dollar company. In 2000, Blockbuster refused to buy Netflix for $50 million, because “it was a very small niche business”.

Home Depot (HD) closed at all-time highs today. $5000 invested in Home Depot when it went public in 1981 is worth about $30 million today.

Turning 5k into 30 million for 35 years means that HD compounded at an average annual rate of 28%.

28% annual appreciation for 35 years is very, very rare. To compare to some of the best-performing stocks of all time: 5k invested in Microsoft in 1986 is worth about $4.85 million today. 5k invested in Walmart in 1975 is worth about 29 million today. 5k invested in Applied Materials (AMAT) in 1975 is worth about 22 million today.

Finding a stock that has the potential to compound at 28% annually for 35 years is close to impossible and probably, it won’t be repeated ever again. Holding such a stock for 35 years might be even harder.

What if instead of finding a stock that can compound annually at 28% for 35 years, you find a stock that can go up 28% this year? And then you repeat the exercise every year for 35 years, one stock at a time? It won’t be easy, but it is also a lot more manageable. Compounding can be magical.

1562 stocks went up more than 30% in the past 12 months. 334 went up more than 100% for the same period.

Check out my newest book: Top 10 Trading Setups – How to find them, when to trade them, how to make money with them.