For investors focused on technical analysis, finding stocks that are both in a strong trend and ready for a new move higher is a key strategy. One method uses a filter for stocks that combine a high "Technical Rating," which measures the overall condition and trend of a stock, with a high "Setup Quality Rating," which finds patterns that often come before breakouts. This method tries to find technically good stocks at a possible turning point, offering a clearer entry with defined risk.
Western Midstream Partners LP (NYSE:WES) recently appeared from such a filter, presenting a profile that technical traders may find interesting. As a master limited partnership (MLP) operating midstream energy assets across several U.S. basins, its stock is now showing features that match this breakout method.
Looking at the Technical Base
The first part of this strategy is a stock's basic technical condition, measured by ChartMill's Technical Rating. A rating of 7 or more is usually wanted to confirm a stock is in a clear uptrend and doing better than similar stocks. WES now has a Technical Rating of 7.
A closer look at the full technical report shows the parts making this score:
- Trend Direction: Both the short-term and long-term trends for WES are rated as positive. This agreement across time periods is a strong positive signal, showing continued buying pressure.
- Moving Average Position: The stock is trading above its important short- and medium-term moving averages (20-day, 50-day, and 100-day SMAs), which are all rising. This makes a series of moving support levels under the price.
- Performance Compared to Market: While WES is a medium performer compared to the whole market over the last year, it does better than 61% of stocks in its Oil, Gas & Consumable Fuels industry, showing strength relative to its sector.
This firm technical background is important because it raises the chance that a breakout from a tight range will keep going in the direction of the main trend, instead of failing or turning down.
Looking at the Setup Quality
A strong trend alone is not a buy signal; entering after a big price increase has risk. The second important filter is the Setup Quality Rating, which looks for periods of price tightening or "narrow" trading after a move. This makes a clearer base of support and a defined level for a possible breakout. WES does very well here with a Setup Rating of 9.
The technical report points out why the setup looks good:
- Recent Tight Range: Over the last month, WES has traded in a narrow range between about $38.55 and $40.57. This decrease in movement after an upward move is a typical sign before a new directional move.
- Clear Support and Resistance: The analysis finds a clear support area between $37.31 and $39.35, made by a mix of trendlines and moving averages. Just above, resistance is seen at $39.65. This creates a well-defined trading range.
- Large Trader Activity: The report notes that large traders have shown activity in WES in recent days, as seen in volume analysis on short-term time periods. This can be a confirming signal that buying is happening during the tight phase.
A high Setup Rating is key for the strategy as it finds a moment where risk can be more exactly controlled. A trader can place a stop-loss order below the found support area, while a buy order just above the resistance level lets them join only if the stock confirms the breakout with higher volume.
Trade Plan and Market Setting
Based on this analysis, an example trading plan is made. It suggests an entry at $39.66, just above the immediate resistance, with a stop-loss at $38.76 below the recent range. This limits the example risk on the trade to about 2.3%.
It is important to see this with the wider market. The S&P 500 is in a positive trend both short- and long-term, giving a generally good setting for stock breakouts. However, WES itself is trading in the middle of its 52-week range, behind the wider market's move to new highs, a point that some may see as possible room for growth.
The mix of a positive trend (Technical Rating 7) and a good tightening pattern (Setup Rating 9) makes WES a stock that technical breakout traders may want to watch. This filter is made to find such chances daily.
For investors trying to find similar possible breakout setups, you can see the current list of stocks that qualify by going to the Technical Breakout Setups screen.
Disclaimer: This article is for information only and does not make investment advice, a suggestion, or an offer to buy or sell any security. The trading plan described is an automatic, example for showing how it works. Investors should do their own research, think about their risk tolerance, and talk with a qualified financial advisor before making any investment decisions. Past performance does not show future results.
