When a stock stomps up from a breakout and holds onto its gains, it's exactly the kind of leader you're looking for.
But what if it starts holding in hushed volume? It doesn't move much, up or down, from week to week. Is the stock stalling?
Not necessarily. It can be a bullish sign in some cases.
Strong stocks sometimes will close three straight weeks within 1% of its previous week's close. Its volume will stay on the light side during this period. This unusual model is called a three-weeks tight.
It's pretty easy to spot it on a weekly chart. Soon after a stock has broken out of a base, it will begin trading sideways.
What does it mean? The three-weeks-tight pattern signals that mutual funds and other institutional investors are comfortable with the stock's new, higher price and aren't about to take any profits yet.
Once the stock launches above the high of the consolidation, you have your next breakout.
The three-weeks tight tends to work best with the market's best leaders.
Research In Motion (NasdaqGS:RIMM - News) surged out of a three-weeks-tight pattern the week of June 15, 2007, in elevated volume (point 1). The weekly closes in the three-week span were no more than 0.8% away from each other.
Although it slipped a bit the week after the breakout, it never fell more than 6% from its buy point.
The smart phone maker soared the week of June 29, ratcheting up a 17% gain (point 2). The stock then launched a five-month, 105% run-up before it corrected again.
Another bullish signal is even rarer to spot. Known as the short stroke, it's a relative of the three-weeks-tight pattern.
Just a couple of weeks long, the short stroke starts with a big advance one week. The next week, it trades in a tight range. The swing from the stock's weekly high to its low will be within a few percentage points. Ideally, the stock rises for the week, but doesn't make a new high. On a chart, it looks like the short stroke of a pen -- which is where the name stems from.
As with the three-weeks tight, the short stroke shows a stock not giving up its big gains.
Business software developer Pegasystems (NasdaqGS:PEGA - News) started a short stroke when the stock skyrocketed 40% the week of May 8 (point 3).
The stock made a narrow move the next week to earn its colors as a short stroke. (point 4 )Despite a modest pullback, Pegasystems continued rallying to a peak earlier this month.
Source:-
http://finance.yahoo.com/news/Investors-Corner-Short-Tight-ibd-2052064002.html
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