For technical investors, identifying stocks that are in a good trend and might be ready for a near-term move can be a good strategy. One way to do this is by using two specific metrics: the ChartMill Technical Rating and the ChartMill Setup Quality Rating. The Technical Rating, a number from 0 to 10, measures the general condition and trend strength of a stock. A high number points to a good uptrend. On its own, the Setup Quality Rating, also from 0 to 10, judges the state of a stock's present chart pattern, searching for periods of stability that frequently come before a price move upward. By looking for stocks with high numbers in both areas, investors can find securities that are both in good technical condition and possibly ready for their next price increase.
STAG Industrial Inc. (NYSE:STAG), a real estate investment trust that owns single-tenant industrial properties, recently appeared from such a search. With a Technical Rating of 7 and a very good Setup Quality Rating of 9, it serves as an example for this combined technical method.
Looking at the Technical Base
The main idea of the strategy is first to confirm a stock is in a good trend, which is why the Technical Rating is important. A number of 7 or more shows a stock is in a clear uptrend. STAG’s rating of 7 confirms it fits this basic requirement. A closer review of the full technical report shows the particular good points supporting this number:
- Good Trend Agreement: Both the long-term and short-term trends for STAG are seen as good. This agreement across different time periods points to continued buying interest and lowers the chance of mixed signals.
- Good 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 moving upward. This layered structure is a common sign of a good uptrend.
- Near High Prices: STAG is now priced close to its 52-week high. While its performance compared to the market is typical, trading near highs along with a good overall market (where the S&P 500 is also near highs) shows the stock is part of the current positive momentum.
These points together explain the good Technical Rating. For a breakout strategy to have a better chance of working, it needs to be based on this kind of technically solid foundation, instead of trying to buy a declining stock or guess a change in direction.
Judging the Setup Quality
A strong trend by itself is not a signal for when to buy; getting into a stock that has risen a lot can lead to quick price drops. This is where the Setup Quality Rating of 9 becomes very important. This high number shows STAG is in a constructive period of stability, providing a possible entry point with less risk. The technical report explains the setup:
- Stability and Lower Price Swings: The report states prices have been stable recently with smaller price swings, a common action before a clear breakout.
- Observed Bull Flag Pattern: In detail, the chart shows a bull flag pattern. This pattern happens when a stock holds steady or declines a little after a fast rise, making a shape like a flag on the chart. It is usually seen as a pattern that suggests the trend will continue.
- Defined Support and Resistance: The analysis finds a clear support area between $36.62 and $38.78, made by several trendlines and moving averages. On the other side, a narrow resistance area is between $39.43 and $39.54. These clear price levels allow for exact trade planning.
- Large Investor Activity: Another good point is that large investors have been active in STAG lately, as seen in volume data on short-term charts.
This high-quality setup directly answers the "when" question for investors. The stability gives a possible entry point, the bull flag hints the earlier uptrend could start again, and the clear support level provides a sensible place to set a protective stop-loss order.
A Possible Trade Plan
From this analysis, the technical report proposes a specific, though automatic, trade plan. The suggested idea is to buy on a move above the noted resistance, specifically with a buy-stop order at $39.55. A stop-loss order would be set at $37.18, under the support area, capping the possible risk on the trade to about 6%. It is very important to note this is an example created from the technical data. Investors should always do their own research, change levels to fit their own risk comfort, and know about basic factors like future earnings announcements.
Locating Other Chances
STAG Industrial shows the kind of chance the Technical Breakout screen is made to find each day. For investors wanting to use this method to find other possible setups, a new list of stocks that qualify is provided by the Technical Breakout Setups screen.
Disclaimer: This article is for information and learning only and is not investment advice, a suggestion, or an offer or request to buy or sell any securities. The study uses technical numbers and automatic reports. All investment choices have risk, and you should do your own research and talk with a qualified financial advisor before making any investment choices. Past results do not guarantee future outcomes.
