For investors who use charts and price action to make choices, a common method involves finding stocks that are both technically sound and ready for a possible upward move. This method often centers on two main questions: which stock is in a good upward pattern, and when is the best moment to purchase it? A way to address these questions is by using specialized ratings like the ChartMill Technical Rating and Setup Quality Score. The Technical Rating, on a scale of 0 to 10, measures the general condition and pattern strength of a stock. A high number indicates a solid upward pattern. The separate Setup Quality Score, also from 0 to 10, assesses if the stock's present chart formation provides a good, low-risk chance to buy, usually during a time of sideways movement before a possible upward move. By searching for stocks that rate well on both measures, technical traders can create a list of possible upward move candidates.
One stock that recently appeared from such a search is MATTEL INC (NASDAQ:MAT), the famous toy company known for brands like Barbie and Hot Wheels. According to its latest ChartMill Technical Analysis report, the stock makes a strong case for technical investors seeking a formation in a stock with a positive pattern.
Technical Strength: A Firm Base
The first part of the upward move method is confirming the stock is in a definite upward pattern, which is exactly what the ChartMill Technical Rating measures. MATTEL receives a rating of 7, putting it clearly in positive ground. This number is backed by several important points from the technical report:
- Pattern Agreement: Both the near-term and longer-term patterns for MAT are now rated as positive. This agreement across different time periods is a notable positive sign, showing continued buying interest.
- Moving Average Backing: The stock is priced above its important moving averages, including the 50-day, 100-day, and 200-day Simple Moving Averages (SMAs), which are all rising. This arrangement shows a well-backed upward pattern.
- Relative Performance: While the stock is trading in the higher part of its 52-week range, it is mentioned that it has performed a bit less than the wider S&P 500 index, which is trading near recent peaks. This could indicate room for matching growth if the stock's positive pattern persists.
A rating of 7 means a technically good stock, which is the necessary first step for this method. It answers the "which stock" question by finding an asset with forward motion and a positive pattern arrangement.
Setup Quality: The Sideways Movement Before the Advance
A positive pattern by itself is not a signal to buy; entering during a steep climb often results in purchasing at a high point. This is where the Setup Quality Score becomes important, dealing with the "when to buy" question by finding periods of sideways movement. MATTEL stands out here with a very good Setup Rating of 9.
The report notes several elements adding to this high number:
- Price Sideways Movement: The stock has been trading in a set range between about $20.10 and $22.25 over the last month, with the present price near the center. This time of lower volatility and sideways movement is typical consolidation activity, often coming before a directional move.
- Clear Support and Resistance: The analysis finds a notable support area between $19.80 and $21.09, made by a mix of trend lines and moving averages. Having a clear support zone below the present price allows for the planned placement of a stop-loss order, setting and capping risk.
- Limited Resistance Above: The report states there is "very little resistance above the current price," implying an upward move could meet little selling pressure, allowing for a smoother move higher.
- Pocket Pivot Signal: A recent "Pocket Pivot" signal was seen, which is a volume-based sign suggesting buying by bigger participants—a positive indication of institutional interest often observed before notable price gains.
This mix of a narrow trading range, clear support, and positive volume signs creates what technical analysts call a "high-quality formation." It suggests the stock is tightening, possibly getting ready for its next upward phase.
A Possible Trade Formation
Based on this analysis, the technical report describes a sample upward move trade formation. It proposes an entry point just above a small resistance level at $21.17, which would confirm a move above the recent sideways range. A stop-loss order is suggested below the nearby support zone at $20.09, which would cap the possible loss on the trade to about 5.1%. It is important to recall that this is an automated example for learning, not a suggestion. Traders must always do their own analysis, change settings to match their individual risk comfort, and know about upcoming company events like earnings reports.
For technical investors, MATTEL offers an instructive example. It shows how joining a solid pattern (Technical Rating of 7) with a strong sideways formation (Setup Rating of 9) can find possible upward move chances. This two-step filtering method helps traders concentrate on stocks that are not only moving in the right direction but are also at a chart point that offers a good balance of risk and potential reward.
Want to find more possible upward move formations like this one? You can perform the same search daily using the Technical Breakout Setups tool.
Disclaimer: This article is for information and learning only. It does not form investment guidance, a suggestion, or an offer to buy or sell any security. The analysis is based on technical signs and past data, which are not assurances of future results. Investing includes risk, including the possible loss of principal. Always do your own research and think about talking with a qualified financial advisor before making any investment choices.
