An active investment strategy involves spotting stock trades within a certain price range. Investors typically sell when the price falls below the lower band and hold positions when it crosses the upper band for potential profit.
Today’s stock pick is South Atlantic Bancshares, Inc. SABC, Crexendo, Inc. CXDO and Hecla Mining Company HL.
To pick breakout stocks, calculate support and resistance levels. A support level is the lower limit of a stock’s movement, while a resistance level represents the maximum price at which it trades over a long period of time.
In other words, the demand for the stock is at its lowest support level, which means that most traders want to sell it. Most traders are willing to go long on the stock at the resistance level, meaning they would like to add it to their portfolio. The key is to be able to identify stocks that are on the verge of a breakout or those that have just broken a resistance level.
The primary risk associated with such a strategy is that the decision to buy an obvious breakout candidate was made at the wrong time. When a stock breaks above a resistance level, it should be a highly valued commodity for traders. However, whether such an eruption is real is a completely different matter.
For a bona fide breakout, the stock’s previous resistance barrier should become a new support level. This happens only if the established trading channel is tested by observing long-term price trends. The strength of support and resistance levels can only be determined through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield significant returns, even at a price that may seem unattractive at first glance.
• Percentage change in price over four weeks from 10% to 20% (Stocks whose prices have risen significantly, but whose profits are not too large)
• Current Price /52 Week High is greater than or equal to 0.9 (The stock is trading 90 percent near 52-week highs.)
• A Zacks Rank of Less than or Equal to #2 (Only Strong Buy and Buy rated stocks can enter the market.)
Whether the market is good or bad, stocks with a Zacks Rank of No. 1 (Strong Buy) or 2 (Buy), has a proven track record of outperformance. You can see the full list of today’s Zacks #1 Rank stocks here.
• A beta of 60 months is less than or equal to 2
(Stocks that move more than the broader market, but within reasonable limits.)