Rest Before The Rally?
Updated: Aug 3, 2020
I've been noticing a pattern over the past few weeks among some growth stocks. I've been seeing lots of base on base patterns forming. This is when a stock breaks out and then moves sideways, forming another base. I like to think of it as a box on top of a box. On the one hand, this can be frustrating since the stock breaks out above resistance only to move sideways over the next few weeks. However, this can be viewed as constructive as long as the prior resistance level acts as support. When the breakout level holds, that's a sign that traders are stepping in to buy the stock after missing the breakout. It's almost as if the stock is offering a second chance to buy it and wise investors are not going to miss out on this opportunity. As long as the prior breakout level holds, I remain bullish, knowing that it takes a little time sometimes for stocks to get moving.
Chewy ($CHWY), Shopify ($SHOP), Teledoc ($TDOC), Wingstop ($Wing), and ServiceNow ($NOW) illustrate some examples of what I have been seeing.
NVIDIA, $NVDA, and RingCentral ($RNG) are also forming similar patterns.
A light pause or rest in August and early September could be constructive in my opinion and lead to a strong rally into the election. Time will tell.
Full Disclosure: I currently own CHWY, TDOC, WING, NVDA, and NOW.
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