For technical investors, finding stocks that are in a solid uptrend and may soon advance is an important tactic. A way to locate these possibilities is by searching for stocks that have a high ChartMill Technical Rating, which assesses the general condition of a trend, and a high ChartMill Setup Quality Rating, which finds consolidation patterns frequently seen before breakouts. This pairing seeks to select stocks with good technical conditions that are tightening their price range, possibly presenting a good risk-reward chance to join their ongoing trend.
Reviewing the Technical Condition
The basis of this method is a stock's core trend condition, measured by the ChartMill Technical Rating. A rating of 7 or more is usually seen as showing a good uptrend. HOME DEPOT INC (NYSE:HD) now has a Technical Rating of 7, putting it in this positive group. The technical report notes a number of items adding to this rating:
- Trend Direction: The short-term and long-term trends for HD are both seen as positive, a good sign for trend-based methods.
- Moving Average Position: The stock is priced above important short- and medium-term moving averages, with the 20-day SMA at $381.19 and the 50-day SMA at $364.64, indicating these prices could serve as changing support.
- Recent Performance: The stock has had positive returns over the last one and three-month spans.
Still, the report adds perspective, stating that HD has been an average performer compared to the wider market over the last year and is now priced in the middle of its 52-week range while the S&P 500 reaches new highs. This shows that while HD's own trend is positive, it has not been a top performer lately. The complete technical details can be seen in the ChartMill Technical Analysis report for HD.
Reviewing the Setup Condition
A solid trend by itself does not make a perfect entry point; purchasing after a fast rise can cause quick declines. This is why the Setup Quality Rating is important. It reviews if a stock is making a constructive consolidation pattern, giving a clear support area and a possible breakout point. HD does very well here, having a high Setup Rating of 9.
The review indicates a stock that has been consolidating its recent advances, trading in a band between about $368 and $392 over the last month. This time of narrower price movement has let the stock reduce any overbought state and form a base. Important parts of the setup are:
- Clear Support and Resistance: The consolidation has made specific technical levels. A support area is found between $381.19 and $386.49, made by a mix of trendlines and moving averages. Close overhead resistance is seen at the recent range high near $391.90.
- Nearness to Breakout: With the last price at $390.68, HD is trading near the peak of its recent range, close to the noted resistance level. A clear move above this area could indicate the uptrend is starting again.
- Large Trader Activity: The report states that large traders have been active in HD in recent days, as measured by the Effective Volume indicator, which can be a positive confirming signal.
A Possible Trade Plan
From this technical and setup review, a specific plan appears for traders watching for a breakout. The automated review proposes an entry point just above the resistance at $391.91, with a stop-loss order set below the support area at $381.18. This sets a risk of about 2.7% on the trade. It is very important to note that this is a mechanically created example; traders must always do their own review, thinking about items like general market environment and future company news, to decide their own entry, exit, and trade size.
For investors looking to find comparable technical setups, the search process that found HD can be repeated each day. The Technical Breakout Setups screen filters the market for stocks showing both a solid technical base and a good consolidation pattern, giving a selected list of possible candidates.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer or request to buy or sell any securities. The review shown is based on technical indicators and automated reports, which have limits and may not include all important items. Investing in stocks has risk, including the possible loss of capital. You should do your own research and talk with a qualified financial advisor before making any investment choices.
