For investors who use charts and price patterns to guide their choices, a methodical process can help sort the market's distractions. One such process involves searching for stocks that show both good technical condition and a forming pattern for a possible entry. This method centers on two specific scores from ChartMill: the Technical Rating, which measures the general condition and direction of a stock, and the Setup Quality Rating, which evaluates if the stock is resting in a manner that offers a defined, manageable trading chance. The aim is to find securities that are in clear upward moves and are also tightening, possibly ready for their next upward phase.
Church & Dwight Co Inc (NYSE:CHD), the consumer goods company known for brands like ARM & HAMMER and OxiClean, recently appeared in such a search. The company's stock seems to match the requirements looked for by this technical breakout method, offering a reason for more review by investors focused on charts.
Reviewing the Technical Base
The first part of this method is a high Technical Rating, which confirms the stock is in a good, continuing upward move, not just a short-lived rise. CHD’s Technical Rating of 8 out of 10 points to a sound technical condition. A review of the detailed technical report shows the reasons for this score:
- Trend Agreement: Both the near-term and longer-term trends for CHD are marked as positive. This agreement across periods is a main feature of a lasting trend, lowering the chance of a misleading signal.
- Moving Average Backing: The stock is priced above all its main moving averages (20, 50, 100, and 200-day), and each of these averages is itself in an upward arrangement. This layered, rising support formation is a typical sign of upward momentum.
- Good Relative Performance: While CHD’s one-year performance trails the wider market, its recent momentum is significant. The stock has risen over 21% in the past three months, doing much better than its 12-month return and pointing to a recent increase in buyer activity.
This firm technical rating is important because it addresses the first question of which stock to review. It removes stocks in downward moves or unclear rests, focusing only on those with fundamental strength, which raises the likelihood that a breakout will continue with more gains.
Reviewing the Setup Quality
A firm trend by itself is not a buy signal; entering at a poor moment can result in quick losses if the stock is "overstretched." This is where the Setup Quality Rating becomes important, dealing with when to review an entry. CHD receives a very good Setup Rating of 9, indicating it is forming a positive pattern.
The analysis indicates a "bull flag" pattern, which happens after a firm rise and is marked by a small, downward-tilting rest on lower volume. This pattern implies the prior upward move is taking a short break before possibly continuing. Main parts of the setup include:
- Close Resting: Prices have been moving in a fairly small band lately, letting volatility shrink. This tightening action often comes before a clear move.
- Defined Support Area: The report notes a clear support area between $102.09 and $102.46, made by a combination of moving averages and trendlines. A defined support level allows for the exact placement of a stop-loss order to control risk.
- Nearness to Moving Averages: The present price is trading close to the 20-day simple moving average (SMA). This nearness is a positive part of a setup, as it suggests the stock is not distant from its near-term momentum base, allowing for a possible entry that is not following a major price jump.
The high Setup Rating shows that the risk/reward measures for a possible trade are well-defined. An example setup from the report proposes an entry just above the 10-day average near $103.84, with a stop-loss placed below the support area around $102.08. This would mean a contained risk of about 1.7% on the trade itself.
A Measured View for Investors
While the technical and setup views are positive, the report also gives measured, neutral notes. CHD is presently trading in the middle of its 52-week range, not at a new high, and its industry-relative strength is moderate. For a breakout trader, this setting is important; it may mean the stock has more space to advance if it can pass its mid-range resistance, but it also shows it is not the top leader in its group at this time.
The daily Technical Breakout Setups search is made to methodically find charts like CHD that meet these strict technical and setup conditions. For investors wanting to see the current list of matching securities, you can view the latest results by going to the Technical Breakout Setups page.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer to buy or sell any security. The analysis uses technical data and automated scoring models. All trading and investment choices involve risk, including the possible loss of principal. Investors should do their own research, think about their financial position, and talk with a qualified financial advisor before making any investment choices. Past results do not guarantee future outcomes.
