For technical investors, finding stocks that are in a solid uptrend and ready for their next advance is a central method. One way to locate these chances is by looking for stocks that have both a high technical health score and a high-quality setup pattern. The proprietary ChartMill Technical Rating measures a stock's total trend strength and momentum, while the separate ChartMill Setup Quality Rating assesses how consolidated a stock's price action is, pointing to a possible entry point before a breakout. A stock with good scores on both measures makes a strong case: it is a market leader in sound condition, and it is preparing for its next notable move.
BORGWARNER INC (NYSE:BWA) has recently appeared on such a scan, showing the exact mix of solid technicals and a positive setup that technical traders frequently look for. The company, a major provider of propulsion systems for combustion, hybrid, and electric vehicles, is now showing firm price action that fits this disciplined method for locating breakout candidates.
Technical Strength: A Base of Leadership
The main filter in this method is a high Technical Rating, which confirms the stock is in a definite uptrend and doing better than the wider market. BorgWarner performs well here, receiving a top score of 10. A look into the full technical report shows the sources of this strength:
- Trend Alignment: Both the short-term and long-term trends for BWA are rated as positive. This agreement across time periods is a strong sign of continued momentum and lessens the risk of opposing trend noise.
- Relative Outperformance: The stock is doing better than 88% of all stocks in the market over the last year, a clear mark of leadership. This relative performance is a key part of the technical rating, as leaders often stay leaders.
- Moving Average Support: The stock price is trading above all its main simple moving averages (20, 50, 100, and 200-day), and each of these averages is itself in a rising pattern. This layered, positive alignment shows wide buying support across different time periods.
- Proximity to Highs: BWA is trading near its 52-week high. While this can sometimes indicate an overbought state, within the framework of its firm technical rating and setup, it strengthens the stock's place in a solid uptrend.
This outstanding technical rating addresses the important first question for a trader: "Is this a stock I want to own?" The information indicates BWA is a technically sound leader.
Setup Quality: Locating the Entry Area
A firm trend by itself is not a buy signal; buying at a bad moment can result in quick losses. This is where the Setup Quality Rating, which for BWA is a high 9, becomes important. It finds times of consolidation or "tight" price action inside the wider uptrend, providing a lower-risk entry point.
The technical report points out several elements adding to this high setup score:
- Recent Consolidation: The report states that prices have been consolidating lately, trading in a range between about $46.30 and $49.21 over the last month. This halt in the rise lets the stock absorb its gains and form a new base of support.
- Defined Support and Resistance: A clear resistance area is found just above the current price, between $48.58 and $48.94. In contrast, a support area sits below, between $47.95 and $48.20. These clear levels are important for planning a trade, as they give logical spots for a breakout entry and a protective stop-loss.
- Supportive Volume Action: The report also notes a recent "Pocket Pivot" signal, a pattern that shows accumulation (buying) by institutional investors on up days with higher-than-normal volume. This adds a level of confirmation to the positive price action.
The high setup rating directly answers the trader's second question: "When should I buy it?" It indicates the stock is not overbought but is instead forming a possible starting point.
A Sample Trading Plan
Based on this review, the technical report describes a sample trade plan. It proposes an entry point just above the noted resistance area at $48.95, which would confirm a breakout from the recent consolidation. A stop-loss order could be set just below the support area at $47.94, capping the sample risk on the trade to about 2.1%. This example shows how the technical and setup ratings can be turned into a specific, rules-based plan with clear risk.
Locating Similar Chances
BorgWarner provides a clear example of a stock satisfying the strict requirements of a technical breakout setup. For investors wanting to search the market for similar chances each day, the Technical Breakout Setups screen is a useful tool. You can run this screen for yourself here to see the present list of stocks showing both high technical and setup ratings.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer to buy or sell any security. The trade plan mentioned is an automated, sample illustration for learning. All investing and trading includes risk, including the possible loss of principal. Always do your own complete research, think about your personal money situation and risk tolerance, and talk with a qualified financial advisor before making any investment choices. Past results do not guarantee future outcomes.
