A lot of traders get frustrated or bored...
But when we see this sign, we're encouraged...
We know it's a vote of confidence... and that more likely than not, prices will continue to rise.
So when you come across it, mark it as a point in the "pros" column...
When an asset consolidates at its highs, it's a bullish sign.
This is a simple but important idea. When an asset isn't going anywhere, traders often get impatient and sell... just before the next move higher. And they miss out on big gains.
We don't want this to happen to you. So today, we'll zero in on this price action... And we'll show you a couple of recent examples from our DailyWealth Trader (DWT) portfolio where we've already benefited from letting our winners ride.
First, though, let's be clear about what we mean when we say that an asset "consolidates at its highs"... and why it's a bullish sign.
This price action can happen over any time frame, from minutes and hours to months and years. The shorter the time frame, the more relevant it is for a short-term move higher. The longer the time frame, the more relevant it is for a long-term move higher.
In DWT, we're most interested when an asset hits at least a one-year high, then consolidates – or trades sideways for a while – at those highs...
The new high shows that folks like the asset enough to pay the highest price in a year to own it. The consolidation shows that more folks are willing to continue paying those same, higher-than-in-the-past prices.
And if they're willing to buy at the highs, they'll likely continue buying as it moves higher.
With that in mind, let's look at the charts...
In the chart below, you can see that semiconductor giant Intel (INTC) shares rallied from $28 in February 2016 to a new high near $38 in October 2016. Then, prices consolidated at those highs – falling no more than 12% from their highs – for about a year. We noted this positive price action in DWT and recommended buying shares, just before they ripped higher...
Of course, we didn't recommend buying because of the price action alone. Intel was cheap, paid a big dividend, and was in a long-term uptrend.
The consolidation was just part of the bullish case for Intel. And now, DWT readers are sitting on 48.8% gains.
With another set of stocks, it played out differently... but still successfully.
We recommended buying the First Trust Nasdaq Cybersecurity Fund (CIBR) in November 2016 and added to the position in March 2017. Coincidentally, the cybersecurity fund was just entering a period of consolidation. So if you followed our advice, you may have been frustrated by the months of boring, sideways action.
But we patiently held on. And shares never fell even 8% off their highs. As you can see in the chart below, CIBR finally hit new highs at the end of 2017. It has continued higher since its breakout...
Subscribers who followed our advice are now sitting on 31.4% and 23.5% gains, respectively.
When an asset holds at or near its highs for an extended period of time, it's a sign that investors and traders are finding value at those elevated prices. Once those levels become the new norm, the door opens to even higher prices.
So if you're holding an asset that's consolidating at its highs, stay long. And if you're thinking about buying, remember that this price action is a bullish sign.
It could be the piece of the puzzle that helps you book your next big winner.
Good trading,
Ben Morris and Drew McConnell
Editor's note: Ben and Drew recently recommended a trade on a high-quality tech business that's quietly starting an uptrend. The last time they traded this mobile innovator, they outperformed regular shareholders with less risk than buying the stock outright. To learn how to access this recommendation with a risk-free trial of DailyWealth Trader, click here.
Further Reading
Recently, the U.S. dollar moved from one extreme to another... And Ben says the outcome could stir up different near-term investing opportunities. Learn what to look for right here: A Critical Test for the 'Share Price' of the U.S.
In this essay, Ben shares a simple technical tool that can help you determine how an asset is most likely to move next. It can even help you get a sense of the broader market's short-term outlook. Read more here: This Strategy Crushed Buy-and-Hold... Here's How to Use It Now.
The U.S. stock market is consolidating near its all-time highs. I believe we'll see the S&P 500 Index break out again this year as a result. That means you want to own U.S. stocks. Here's an opportunity from my colleague Dave Eifrig...
CONSUMERS LOVE THIS ICONIC BRAND
Today, we revisit a company with one of the strongest brands in the world...
Businesses with iconic brands have a reputation for producing superior goods. Their customers keep coming back – and they're willing to pay premium prices for the branded products they trust. Now, one famous athletic stock is continuing a strong rally...
We're talking about Nike (NKE). This popular sports brand has grown its value to $115 billion by selling shoes and apparel. We checked in on Nike in January, after the company announced a $12 billion stock buyback program. Today, it continues to shine... Revenue in the third quarter jumped 7% to nearly $9 billion, driven by international sales. And CEO Mark Parker says the fourth quarter looks strong, thanks to record consumer demand for Nike's new React cushioning technology in sneakers.
As you can see below, Nike has been on a tear. Shares are up more than 40% from their October lows and recently hit a new all-time high. As long as consumers get excited about brand-name sneakers, expect this stock to run higher...
