Understanding Telix, page-280

three weeks tight ....

When To Buy Stocks: Why TheShort Stroke, 3-Weeks-Tight Patterns Fuel New Buy Points

The short stroke and the three-weeks-tight maysound like funny names in the IBD lexicon of chart analysis. But if you want toknow when to buy stocks to boost your chances of strong gains in your biggestwinners, read on.

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Yet both chart patterns, discovered by IBD's founder William O'Neil, succinctly denote a pair of must-learn chart patterns for those who want to scale into a terrific growth stock with follow-on buys and maximize their profit potential. Why?

These two formations do not show up often,especially the short stroke.

But if you've got a stock that has the potential torise 50% or 250% or more from the correct buy point, why not look for places in which demand is still great, the supply of readily available shares among big shareholders is still low, and the probability of excellent returns is in your favor?

SIGN UPNOW!

Both short-term traders and long-term investors mayuse either to initiate or add to an existing stock position.

Both formations indicate a pause in a stock'sadvance, which may give the impression it's stalling. On the contrary, both canproduce powerful breakouts.

Why TheShort Stroke Is Rare

The short-stroke pattern is unusual. It forms overjust two weeks. The first week is marked by a strong advance — 10% to 20% oreven more — and usually coincides with or comes shortly after a breakout froma solid base.

The second week shows tight trading; the differencebetween the stock's weekly high and low is typically just a few percentagepoints.

Watch for the stock to rise or fall just slightlyin the second week without making a new high.

Such tame action after a big run-up shows thatinstitutional investors are in no hurry to sell.

Research In Motion, the maker ofBlackBerry phones that later changed its name to BlackBerry (BB), formed a classic short-stroke pattern starting in the week ended Dec. 26, 2003.

The stock rocketed 52% in huge volume (1),clearing a six-week flat base with a 48 buy point (the weekly chart reflects a 2-for-1 split in June 2004).

Trading was tight in the second week, with theweekly high of 34.74, 5% above the 33.05 low. Volume was unusually light. Seehow in the weekly chart, the volume bar is sharply below the 10-week movingaverage line? That's good. Institutions were sitting on their shares that week.

Also, the stock never passed the previous week'shigh. Better yet, the second week was an upside reversal.

The follow-on buy point was the first week's high,or 35.42. The stock cleared that the very next week, jumping 10% in strongturnover. From there, BlackBerry nearly tripled over the next year. It peakedat a split-adjusted 103.56 in December 2004.

Three-Weeks-TightVs. Short Stroke

The three-weeks-tight pattern forms when a stock closes within 1.5% of the prior week's close for two straight weeks. Volume will be quiet during this period as the stock consolidates after breaking out of its base. This signals institutional investors are comfortable with the stock's advance.

Find the proper buy point by identifying thehighest price in the pattern.

Remember, these patterns have a higher record ofsuccess when the market uptrend is favorable.

Viper Energy Partners (VNOM), a longtime member of the IBD 50, cleared a 40.48 three-weeks-tight entry during the week ended Sept. 21, 2018. Gains from that breakout price barely topped 8% before the stock reversed badly. Why?

Distribution days began piling up in September and October of that year. On Oct. 10, IBD downgraded the current outlook in stocks to "market in correction" (the best time to go to cash and avoid fresh buys). The Nasdaq market was littered with seven distribution days.

Large caps and megacaps, including Apple (AAPL), have also etched this key pattern before cruising to further gains and new highs.

AppleProduces Three-Weeks-Tight

In September 2019, Apple began a prolific run afterthe stock climbed out of a flat base.

Right after the breakout, shares traded with minorprice changes. It seemed the breakout had stalled. But during that time, Appleformed a three-weeks-tight pattern. Shares closed with only a 0.5% pricedifference the weeks of Sept. 20 and Sept. 27, 2019.

Apple topped the three-weeks-tight formation thenext week in heavy volume, and the stock's advance took off for good. The buypoint was 226.42, slightly above the 221.37 entry of the flat base thatpreceded the three-weeks-tight.

This was not a typical example, because in mostcases the three-weeks-tight forms after a stock has traveled a distance fromthe initial breakout.

Typically, investors should add only a small amountof shares — say, 5% of what would be a full-size position — when the stockclears a secondary buy point. Doing so gives investors a chance to benefit fromfurther gains without taking a big risk.

Make sure the market is in a confirmed uptrend before adding shares at a secondary buy point. And remember to sell shares that fall 8% from the purchase price. Keep your losses small. That way, you can invest in a better stock or in better market conditions.