For investors who use charts and price action to make choices, a methodical way to find chances is important. One such technique uses filters for stocks that have both good technical measures and are making a constructive price pattern. This method centers on two main measures: a high Technical Rating, which finds stocks in steady uptrends, and a high Setup Quality Rating, which points out those trading in a narrow range, possibly ready for their next upward move. By using these filters together, traders try to locate likely breakout candidates within the market's leading companies.
KENNAMETAL INC (NYSE:KMT), a maker of tungsten carbide metal cutting tools and wear-resistant products, is now a clear example of this structure. The company's stock has performed well, but recent price activity indicates it could be getting ready for another important price change.
Technical Strength: A Base of Strong Performance
The first part of this method is finding stocks with good underlying technical condition. A high Technical Rating, like the score of 9 out of 10 given to KMT, shows a stock is in a strong uptrend and doing better than similar stocks. This rating results from a full review of trends, moving averages, and relative strength across different time periods.
The technical report for KMT points to this condition with several strong data points:
- Long-Term Trend: The long-term trend is clearly positive, while the short-term trend is neutral. This mix frequently comes before the main uptrend continues once the near-term pause ends.
- Relative Performance: Over the last year, KMT has done better than 93% of all stocks in the market and 93% of similar companies in the Machinery industry. This better relative performance is a sign of market leadership.
- Trend Alignment: The stock is trading in the higher part of its 52-week range, moving with the wider S&P 500, which shows its condition is not happening alone.
This good technical foundation is important because it raises the chance that any following breakout will hold, instead of being a false signal in a weak stock. You can see the full details of these items in the detailed technical report.
Setup Quality: The Pattern of Readiness
While technical condition finds which stock to watch, the Setup Quality Rating deals with when to think about an entry. A high score here, like KMT's 9, shows the stock is making a constructive pause pattern. This time of lower volatility and sideways movement lets the stock absorb its earlier gains and form a base for the next rise.
KMT's present chart shows the features of a good structure:
- Pause in a Range: Over the past month, the stock has traded between $35.81 and $42.03. It is now in the middle of this range, having moved down from recent highs, which could give a more acceptable risk/reward entry point.
- Clear Support and Resistance: The review finds a firm support area between $35.72 and $37.17, made by a group of moving averages and trendlines. Just above, a resistance level is at $37.85. A clear move above this resistance could show the beginning of the next upward period.
- Institutional Activity: The report mentions more activity from large traders in recent days, as shown by the Effective Volume measure. This can be a positive signal of buying during the pause period.
The existence of this narrow structure is what makes KMT a candidate for a breakout method. It gives a clear level to set risk (below support) and a specific point for entry (above resistance), which are needed for careful trade management.
A Specific Trading Plan
From this technical and structure review, a possible trade plan appears. The automated review proposes an entry point just above the noted resistance at $37.86, with a protective stop loss set below the important support area at $35.80. This sets a risk of about 5.4% on the trade itself. For a portfolio manager wanting to limit total portfolio risk to 1% on this idea, the position size would be about 18.4% of capital.
It is very important to note this is a purely technical plan. Investors should always think about fundamental items, like the company's results in its aerospace, energy, and infrastructure markets, and know about any coming earnings reports or news that could affect price activity.
Locating More Breakout Chances
KMT shows the kind of chance a methodical technical filter can find. For traders looking for a daily list of similar likely structures, the steps that found this stock can be repeated. You can find new technical breakout candidates daily by using the dedicated Technical Breakout Setups screen. This tool filters the market for stocks that, like KMT, mix high technical and setup ratings, giving a specific starting point for more review.
Disclaimer: This article is for information only and does not make up investment advice, a suggestion, or an offer to buy or sell any security. The trading plan shown is an automated, theoretical example from technical measures and is not a promise of future results. All investing and trading has risk, including the possible loss of principal. Always do your own review and think about talking with a qualified financial advisor before making any investment choices.