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Consolidations
are when the price action of a stock becomes tightly contained
following a trending move. Consolidations can take on all sorts of
shapes and characteristics. One in particular can be useful for trading
purposes since the consolidation itself shows there is still short-term
buying interest. The longer-term buying interest of the trend - combined
with the short-term buying interest of the consolidation - indicates
that the next likely move for the stock is higher. Many traders wait for a breakout of a consolidation, believing the breakout provides confirmation of the next move. That isn't necessarily true, since false breakouts
can occur even with this confirmation. This presents two options. Take a
long trade as soon as you see the consolidation pattern discussed
below, or wait for the breakout. The former keeps risk lower since the
entry point is closer to the stop level. The latter has slightly more
risk, but may give traders a bit more confidence in taking the trade.
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U.S. Silica Holdings Inc. ( SLCA)
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U.S. Silica Holdings Inc. ( SLCA)
has more than doubled in price since February, and the price has been
consolidating since the start of June. The consolidation is still
showing there is upside strength because the second swing low
on June 20 was higher than the swing low on June 13. A move above $55
will break the consolidation and indicate another move higher. The price
target is $59.50 and a stop can be placed below $51.
SEE: Profiting In Bear And Bull Markets
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Moody's Corp. ( MCO) is currently trading near the middle of a trend channel.
This consolidation could be pause before a decline back toward the low
of the channel, or a pop higher toward the top of the channel near
$91.25. On June 16 the price made a swing low at $84.48, proceeded to
make a new high at $89.08, but when it retreated the price made a higher
low at $84.54. The price has been rallying back toward the high since.
This shows there is still buying interest and the price is likely to
test, and potentially break, that high before heading back toward the
channel low. Given the choppier tendency of the stock, minimize risk
with a stop below $85.70. To give more room place a stop below the
recent swing low at $84.50. Initial target is $91.25 based on the trend
channel, but there is upside potential beyond if the long-term trend
continues. ( For related reading, see: How To Trade With Price Channels.)
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PolyOne Corp. ( POL)
jumped 2.32% on June 20, and closed above a small consolidation which
should mark the resumption of the uptrend. $43 is one target, based on a
trend channel which began in May 2013. Based on the run higher in
mid-May to early June, a more aggressive target is $45. Stops go below
$40.08. A massive volume day in late May has resulted in a skewed OBV.
Even so, since that time the indicator has been trending higher,
signaling that the uptrend is healthy and likely to continue.
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Herbalife Ltd. ( HLF),
after a very weak start to the year, has been moving higher since
April. The price is consolidating in June, with the first pullback on
June 13 finding support at $62.45, and the June 24 pullback finding
support at $63.51 (higher low). A break above the consolidation high at
$66.81 signals another wave higher. This is a very important juncture
for the stock, as this consolidation aligns with a much larger
consolidation from earlier in the year when the price was trending
lower. A break higher from this point, reverses the longer-term
downtrend and leave open space until resistance near $76. Stop loss
orders can go below $63.50 or $62.40.
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