For investors who use charts and price action to make decisions, a methodical way to find possible trades is important. One method looks for stocks that show both good basic technical condition and a defined, useful chart pattern. This idea looks for securities in clear uptrends that are now pausing, indicating they could be getting ready for their next upward move. The aim is to join the "what" to buy—a stock with good momentum—with the "when" to buy—at a good entry spot during a halt in its rise.
MGM Resorts International (NYSE:MGM) recently appeared from this kind of search, showing a picture that may appeal to technical traders searching for breakout chances.
Technical Strength: A Good Base
The first part of this idea is finding stocks with good technicals, meaning a lasting uptrend. Based on the ChartMill Technical Report, MGM gets a Technical Rating of 8 out of 10, putting it clearly in the "uptrend" group. This score comes from a detailed study of the stock's price activity.
- Long-Term Trend Condition: The long-term trend for MGM is seen as positive. This is an important point, particularly now when the S&P 500's own long-term trend is negative. MGM's capacity to keep a positive long-term path shows comparative strength.
- Good Comparative Performance: The stock's technical condition is also supported by how it acts compared to similar companies and the wider market. In the last year, MGM has done better than 71% of all stocks and a significant 83% of other firms in the Hotels, Restaurants & Leisure group.
- Helpful Moving Averages: The stock's price is above its main long-term moving averages (50-day, 100-day, and 200-day SMAs), which are all rising. This agreement is a standard mark of a sound uptrend, with these averages serving as moving support points.
A high Technical Rating addresses the "which stock" question for a trader. It sorts for market leaders, making sure any possible trade idea is happening in a stock that has already shown it can gain buying interest and rise over time.
Setup Quality: Finding the Entry Area
A good trend by itself is not a buy sign; entering a stock after a fast increase has notable risk. The second part of this idea is the Setup Quality Rating, which measures the condition of a pause pattern. MGM gets an 8 here too, meaning a good setup exists.
- Price Pause: The report states that prices have been pausing lately, with the stock moving in a set area between about $33.45 and $37.97 over the last month. This time of rest after a rise lets the stock ease overbought states and form a new base of support.
- Defined Support and Resistance: The study points out several clear technical points. A main support area is between $34.56 and $36.04, made by a combination of trendlines and moving averages. Directly above, a resistance area is between $36.40 and $36.72. This narrow space between support and resistance makes a clear point where a clear breakout can mark the next move.
- Lowered Volatility: Pause patterns often come with a drop in volatility, which the setup score includes. A calmer, smaller trading area prepares for a stronger and more dependable breakout when it happens.
This high Setup Rating deals with the "when to buy" question. It finds times when a stock with good momentum is halting, giving a reasonable area for entry (a breakout above resistance) and a close point for controlling risk (a stop-loss below support).
A Possible Trading Plan
The technical report combines these two good ratings into a specific, though example-based, trading plan. It proposes an entry point at $36.73, which would start on a breakout above the nearby resistance area. A stop-loss order is suggested at $35.19, set below the recent pause low and the noted support area. This plan tries to join a new uptrend if the breakout works, while firmly capping downside risk if the move does not.
It is important to state that this is a sample idea made from the technical factors. Traders must always do their own study, thinking about items like general market state, group momentum, and coming company events like earnings reports.
Finding More Chances
The process that showed MGM can be used methodically to find new possible trades each day. The rules focus on stocks with both a Technical Rating and a Setup Rating of 7 or higher, sorting for those with good trends and current patterns.
For investors wanting to see the present list of technical breakout ideas, you can view the live screen here.
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 trading idea noted is an automatic, sample-based picture and should not be seen as a specific suggestion. All investing and trading has risk, including the possible loss of principal. Always do your own study and think about talking with a qualified financial advisor before making any investment choices. Past results do not show future outcomes.