In every market cycle, what do virtually all of the best stocks like Apple (AAPL), Netflix (NFLX) and Paycom Software (PAYC) do in the early stages of a major price move? They break out of chart patterns, such as a cup with handle, double bottom or flat base.
Since these patterns launch the climbs of most top-performing stocks, it’s important to learn how to read stock charts and how to spot the optimal buy points as they form. It’s the most effective way to invest when the potential for reward is high and the risk is relatively low.
In the stories below, you’ll find technical analysis of potential or recent breakout stocks on the IBD Breakout Stocks Index (new updates available after the market close every Tuesday). You’ll see the type of base the stock forming, the ideal buy point, and what clues to look for in the stock. From time to time, we’ll also go over lessons learned from stocks that were previously featured on the index. Look for coverage of a new stock every Wednesday.
IBD Breakout Stocks Index Gains 50.5% In 2020
Boosted by stocks like Pinduoduo (PDD), ServiceNow (NOW), Entegris (ENTG), PennyMac Financial Services (PFSI) and eXp World (EXPI), the IBD Breakout Stocks Index soared 50.5% in 2020. Track the index to see which stocks to watch may drive big gains in 2021.
Breakout Stocks To Watch & Technical Analysis
IBD Breakout Stocks Index Vs. S&P 500
The IBD Breakout Stocks Index has more than doubled the performance of the S&P 500 (total return, including dividends) when backtesting its performance to Oct. 12, 2010. The average annual gain for the IBD Breakout Stocks Index has been 25.88%, compared to 9.65% for the S&P 500. The index has been live less than a year.
The IBD index’s year-to-date performance of 15.02% (as of Feb. 28) has continued to top that of the S&P’s 11.48%.
When To Buy The Best Growth Stocks
Three main factors come into play as you’re looking for the best stocks to buy. You’ll significantly increase your rewards and reduce your risk if you wait for each of these elements to line up before you buy.
- Market Direction: The best time to buy stocks is when the general market is in a confirmed uptrend. When the market outlook is “uptrend under pressure” or “market in correction,” it’s best to keep your powder dry and wait for a new rally to take hold. (Here’s how to easily check current market conditions.)
- Company Fundamentals: The market’s biggest winners tend to be companies that have innovative, industry-leading products that are driving exceptional earnings and sales growth. So be sure to focus on stocks that fit that bill. (See the seven traits of winning stocks.)
- Chart Action: Bases are like launchpads that reignite a stock and lift it higher after it’s taken a rest. If you stay patient and wait for a stock to form and break out of a chart pattern, you significantly reduce your risk and still leave significant potential upside. (Here’s how to find stocks near potential buy points.) Read More
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