One of the Best Trends I've Ever Seen

 | Jun 22, 2012 | 11:04 AM EDT  | Comments
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Stock quotes in this article:

tasr

,

arna

As a follower of trends I am constantly looking for the best and most-reliable patterns. Not all of them work, but like scientists, we test them for efficacy. Those that are consistent and are hidden from the view of others are the ones that I can capitalize on most.

One of the best I have found is price above a certain moving average. I look for momentum, velocity, acceleration and speed, especially with options. Some stocks exhibit this behavior and mostly they are low priced.

Consider a stock that is far above the 200 MA (we're talking 100% above it). It's a rare situation, but we find them on occasion when markets are at extremes.  Generally speaking we'll see several names pop up on the screen that are very low priced, perhaps at a buck or so. I throw these out as the moves can be sharp and jagged. Among the rare plays that catch my eye are the ones in biotech and most recently Arena Pharmaceuticals (ARNA) falls into the category of buys. Now, many of you will argue that buying at this point is foolish and a stock is due for correction. Take a look at the chart and you'll see the run was just getting started.

 

Arena Pharmaceuticals (ARNA)
Source: StockCharts.com

 

ARNA may get hit (as early as today) due to some selling on the news. That's typical of the end for a move, when everyone sees it. But from $4 to $12 is not bad.

A distant example was a name that went on a tremendous run 10 years ago. Taser (TASR) was on fire for the better part of a year. It had the longest stretch of this trend that I can ever remember. Once it broke free of the 100% above the 200 MA it never looked back until everyone started to look at it. By then it was just about over, after having run 5000% in about a year. And see the low volume on the move up? Why didn't anyone get on board? Heck, do you know of any better performance in 2002?  

 

Taser (TASR)
Source: StockCharts.com

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