How to Profit From a Price Squeeze
By examining a stock’s chart, you can find key levels where demand for shares should outpace supply, creating a quick push toward higher prices.
If you learn to identify these key levels, you will have a great opportunity to consistently pull short-term gains out of any market.
Today, I will use a couple of charts you have sent in to demonstrate how you can easily see areas where share prices are coiling for a big move. But before I move on to our first chart, I want to thank you for sending in so many questions and comments. I want you to know that I read every single one of your emails. Obviously, I have not been able to address every request. But I am trying to find a better way to give you timely trading advice. I’ll be putting some plans into motion over the next couple weeks. I can’t reveal anything more than that right now, so stay tuned for future updates.
Let’s get back to it…
I would like to know what you think of StemCells Inc. (NASDAQ:STEM). It closed at $0.62 on June 18 and Yahoo Finance shows a 1 year estimate of $4.17… but Seeking Alpha rates it as a loser along with most other stem cell companies. Is this worth looking into or is it best to avoid it altogether?
— M.D.
First, I would avoid message boards and anonymous “ratings” for stocks. Rarely will you ever find any useful information. Instead, let’s see what the chart tells us about this stock.
Here’s a look at STEM:
STEM suffered a big drop from $1.10 in March to as low as 60 cents just this month. But last week, the stock once again showed signs of life. After a big three-day rally, we’re seeing shares consolidate between 78-85 cents.
The two major clues that this stock could be setting up for a squeeze higher are the price pattern and volume. Note the two blue lines that mark a narrow pennant after the big move. This shows the stock is absorbing its big move from the previous week. Trading volume is dropping considerably as the pennant is forming, confirming that investors are not yet eager to sell out of this position just yet…
A breakout above the top blue line could squeeze shares higher. A reasonable price target for a short-term trade would be 95 cents.
I was wondering what your thoughts on Reeds Inc. (NASDAQ:REED) beverage are. The stock went from $2.30-$4.23 in 2 weeks on huge volume. Now the stock is selling off. Is this a pull back with more to come?
— J
Here’s a look at REED:
REED capped off an amazing run from $1.50 to $4.50 earlier this month. However, if the stock can hold above $3, it could have another run left in the tank…
REED’s consolidation has played out over a much longer time frame than our STEM example. After an initial high-volume selloff in early June, this stock has continued to consolidate for the entire month of June. Volume has also dropped off considerably as the month progresses. A breakout above the blue line might send shares higher—but only if high relative volume confirms the move.
After such a massive run-up, REED might need more time to absorb the move. Trade this name carefully…
Keep sending all your tickers, charts and trading questions to editor@pennysleuth.com.
Best,
Greg Guenthner
for The Penny Sleuth
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Greg Guenthner
Greg Guenthner, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes. He is also the editor of Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. For close to a decade, Greg has led Agora Financial’s small-cap division, where he founded one of one of the only independent OTC research advisories in the industry. Greg specializes is classical trading techniques and combines timing strategies with his fundamental analysis of small-cap stocks.
He is a member of the Market Technicians Association and hold the Chartered Market Technician designation.
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Good key points of gaining profit..