For investors using technical analysis to find possible trades, the search usually focuses on two main questions: which stock to purchase and when to purchase it. A structured way to answer these questions is to look for stocks that have good technical scores and are making a constructive price pattern, or setup, for a possible breakout. This process sorts for stocks with a high technical score, pointing to a sound primary trend, and a high setup score, meaning the stock is moving in a narrow range and could be ready for its next price move. One stock currently found by this process is DANAHER CORP (NYSE:DHR).
Technical Strength: A Sound Base
The first part of this plan is finding stocks with good technical condition. Danaher’s ChartMill Technical Rating of 7 out of 10 puts it in a good position. This number aims to measure the strength of a stock's trend by reviewing several factors across various time periods. For a breakout plan, a score of 7 or more is usually wanted, as it indicates the stock is in a clear upward trend, not moving without direction or falling.
Danaher’s score is backed by several specific measures from its technical report:
- Trend Direction: The long-term trend is scored as positive, while the short-term trend is neutral. This arrangement can occasionally come before the longer-term upward trend continuing.
- Moving Average Position: The stock is priced 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 arrangement of support levels is a standard feature of a sound upward trend.
- Relative Performance: While not a top performer, Danaher does better than 61% of all stocks over the last year, performing about the same as the wider market. In its Life Sciences Tools & Services industry, it does better than 68% of similar companies.
This mix of a positive long-term trend, price above rising moving averages, and good relative performance gives the "which to purchase" answer: Danaher shows the technical base that breakout traders seek.
Setup Quality: Finding a Possible Entry
A strong trend by itself is not a buy signal; entering during a steep climb often results in purchasing at a high. The second important question—"when to purchase"—is answered by the setup quality score. Danaher gets a very good score of 9 out of 10 here, meaning it is currently making a high-grade consolidation pattern.
This high score comes from particular price activity described in the technical report:
- Consolidation Range: Over the last month, Danaher has been priced between $227.23 and $242.80. The report states it is currently priced in the middle of this range, where prices have been consolidating. This time of lower volatility and sideways movement after a rise lets the stock absorb its gains and form a base for its next move.
- Clear Support and Resistance: The analysis finds a definite support area between $222.62 and $230.04, made by a combination of trendlines and moving averages. On the other hand, a resistance area is between $236.71 and $242.06. These clear levels help outline risk (a drop below support) and the possible breakout point (a move above resistance).
- Supportive Measures: The report notes two more positive signs: more buying from large investors (measured by Effective Volume) and a recent "Pocket Pivot" signal, which is a volume-based pattern indicating accumulation.
This high setup score answers the "when" by indicating the stock is in a constructive pause. The narrow trading range, clear support level for setting a stop-loss, and signs of large investor interest make it a possibility for a breakout trade, where a trader could place a buy order just above the noted resistance.
An Example Trade Plan
Using this technical and setup review, the report describes a sample trade idea. It proposes a possible entry if the stock moves above the resistance at $242.07, with a stop-loss order set at $228.13, just below the main support area. This would create a risk of about 5.8% on the trade. It is important to know this is an automatic example for learning, not a suggestion. Any trade choice must come from a person's own review, risk comfort, and knowledge of company-specific news like coming earnings.
Finding Like Possibilities
Danaher shows the kind of possibility that technical breakout screens are made to find each day. The process that found DHR, looking for stocks with a Technical Rating >=7 and a Setup Rating >7, can be used steadily to review the whole market for similar patterns.
For investors wanting to see the present list of stocks fitting these conditions, the Technical Breakout Setups screen is refreshed often and gives a beginning point for more study.
Disclaimer: This article is for information and learning only. It is not meant as investment guidance, a suggestion, or an offer or request to purchase or sell any securities. The review shown is based on technical data and automatic scoring models. All trading and investment choices include risk, including the possible loss of the original amount invested. Past results do not guarantee future outcomes. Readers should do their own research and talk with a qualified financial advisor before making any investment choices.
