Momentum Moves

There's a very specific reason we don't buy these momentum names on the way down. LITE proves this in the above chart. Another good example of this is crowd favorite AAOI. The way 'healthy' uptrends occur is they stair step higher --- bull flag, breakout, consolidate via bull flag/sideways action, breakout --- etc. But these momentum names, which are some of our favorites to trade because of how fast and far they break out, do not build healthy uptrends. They characteristically rage higher, without building higher levels of support along the way. This is why it is normal to see such dramatic falls from highs in these types of names. So, wait for them to build bases and use the normal clues to get long -- don't try buying dips at $44 because it was $56 last week -- because it can just as easily be $30 next week. 

Do you have balls?

Post 3 examples of stocks that you feel are setting up for momentum moves and explain why. 


Leave a comment