The major indexes, including the S&P 500 and DJIA, remain in uptrends. Because of this, longs in strong trending stocks remain the favored play. One strategy for taking advantage of a strong trending stock is to wait for it to pull back (but still stay above a prior swing low) and consolidate. If the pullback is relatively calm, buy as the price moves out of the consolidation to the upside (in alignment with the longer-term uptrend). A stop loss is placed below the recent low to control risk, and a target is set based on the tendencies and volatility of the stock.
Apollo Global Management LLC (APO) has been trending strongly higher for the last year. During that time, pullbacks have been short-lived and have only moved off the prior high by 11% or less. The most recent high occurred on April 28 at $27.78, the stock pulled back about 7% and found support near $26. After a brief consolidation in that region on May 18 and 19, the stock has moved up aggressively. Based on the strength of prior moves to the upside, an estimated target for the next rally is $29. At that point, we could see the price move sideways or pullback again. A trailing stop loss can also be used to maximize gains on a strong rally, or lock in a small profit (avoid a loss) if the price heads lower. Stop losses on longs go below $25.70.
Century Aluminum, Co. (CENX) rallied aggressively at the start of the year and has been in a complex pullback since. Starting in April the price has started making higher swing highs and higher swing lows again, indicating the price is transitioning back to the upside. The pullback has also formed a rounded bottom, a common bottoming pattern traders look for. The surge higher in April (which indicated the pullback was likely over), followed by the smaller drop and consolidation in early May was a signal to get long in the $13 region. That is still a good entry point if the price moves a bit lower again. Alternatively, wait for a strong rally above $15 and then a pullback and consolidation. Buy when the price moves above the high of the consolidation, with a stop loss below the consolidation. For those in a trade already, a stop loss can be placed below $12.40.
Since this pattern takes place over several months, the profit target may also take several months to be realized. Based on the size of the pattern, and the strength of the uptrend, an estimated target is $18.50 to $19.
TTM Technology, Inc. (TTMI) is in a long-term uptrend but has been moving sideways since late February. Ascending swing lows during the sideways movement, combined with the long-term uptrend, indicate buyer strength. Look to buy in the $16.10 to $16.25 region. That is the breakout point of a small consolidation that formed between May 18- 22. A stop loss can go below $15.30, or ideally below $15.10 to give the trade more room in case the price continues to range a bit longer. A break above $17.27 would also help confirm another move to the upside. If the price does break above this range, a conservative target is $19.25, with a more aggressive target at $20.
The Bottom Line
With the market still in an uptrend, buying strong stocks that have pulled back (not too far) and are starting to move back to the upside are still the favored play. Place a stop loss below a recent swing low, and have an estimated target in mind based on how the stock typically moves and how volatile it is. Alternatively, a trailing stop loss can be used to help maximize gains on the stocks that really surge, and help protect profits if the price reverses. Nothing is ever guaranteed, so only risk a small percentage of account capital on any single stock.
Disclosure: The author doesn't have positions in the stocks mentioned.