Tenbagger formations!

TransStock > Analysis > Tenbagger formations!

When building a house, the architect ensures a strong foundation. In this way, subsidence and cracks are avoided.

If you start running, the coach will advise you on good running shoes and a steady build-up. This way, injuries can be avoided.

If you invest in shares and you see a technically strong basis, the price can only go up. In this way, you avoid a classic correction below your purchase price.

In technical analysis, investments in shares with a strong basis are very rewarding.  Once the stock has taken off, it gets all the attention, both technically and fundamentally, which increases its strength explosively.  The investment is therefore relatively quickly worth ten times more.  We then speak of a tenbagger.

 
Where can you find this type of investment?
This type of investment is usually found in the sector “new & hot”.  A new technology, a new product supported by a wide public, a new invention…

This type of company often sees a big rise at the first announcement.  And since profits are not forthcoming, the fall follows, or a long consolidation at a high level.  We wait for the first profit figures. A long wait. The longer, the stronger the basis. The stronger the base, the more important the subsequent breakout.

In my contribution of 18 January 2020, I wrote about ‘put a fuel cell in your portfolio’ (“sector new & hot”) and that the shares from this sector were doing very well.  Therefore, it was looking forward to a downturn and this came about thanks to the corona crisis.

In a later contribution ‘rarely so much homework’, I wrote that strong equities are preferable.  Stocks that are as high as, or already higher than, their peak before the corona crisis.

The fuel cell sector immediately came into the picture.  Since January, they are all up:
BE (+21%), BLDP (+65%), PLUG (+139%), FCEL (+19%)
PPS (+176% ), ITM (+135%), PCELL (+75%), F3C(+45%)

And if you bought during the correction, we are talking about an almost unseen performance.

Two elements are important.

  1. How do I find shares with such a strong basis?
  2. When can I get in?

 

Stocks with strong fundamentals
Powercell Sweden Ab

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With the above example, you will shortly recognise such a long strong base.  First you see the strong rise of 2015 followed by a decline (no gains) and then the long consolidation.  The percentage difference between the highest and the lowest price differs from share to share.  For the first target you take the height of the rectangle and place it on the breakout (see blue arrow).  The share was recommended trend buy via my software TransStock at 40.90 Swedish Kronor (22/01/2019).

Since the low, the stock was already up 100% and some investors found the advice ‘too expensive’.  Today Powercell is quoted at 380 Swedish Krona, an increase of 806% since purchase.

 

Filtering

You can use the TransTrader module to filter for stocks with this pattern.  You will then select shares that, for example, have been quoted in a certain range over the past 20 years.  The shares you find will then meet your criteria.

I prefer to do this manually because the range and the period differ too much.  Place three windows next to each other with 10, 20 and 30 years of price history.  Each time you see the above pattern, draw the horizontal resistance or set an alarm “based on price”.  This horizontal resistance does allow you to filter: your tenbagger selection.

If, on the other hand, you set an alarm, you will be informed in time in case of a break-out.  So the buy signal may appear years later after setting the alarm.  But those are the best signals!

 

When can I enter?

It is best to take the first position on a break-out and increase your position on a rebound after the first rise.  You should increase your position when a clear upward trend is visible.

If the share falls back into the green zone, exit.

 

Two practical examples:
Silver price (commodity)

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The silver price stayed within its base from 1988 to 2007.  See also how the average changes from red to blue.  Since 2014 two zones manifest themselves.  The first has a price range of 1400 to 1800.  The second from 1200 to 2400.  A break through 1800 opens the way to 2200 (height of the first zone is 400 units), then 2400 (1800+600).

 

Ericsson (player 5G)

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The stock Ericsson B was given the advice trend buy via the investment software TransStock at 87.04 Swedish Krona (25/05/2020).  You can see a first base from 2008 (12 years) and a second base from 2002 (18 years).

A first breakout technically takes the stock to 150 Swedish Kronor.  Ericsson is a 5G player (“=sector new”).

Tip

TransStock users can import the selection ‘2205 5G’.  This is an interesting selection with 50 companies active in 5G (“sector new”).

It concerns 5G networks, 5G infrastructure, 5G semiconductors, 5G devices,…

Once imported, take a look at Ciena Corporation.  CIEN has been building for 20 years….


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Paul Gins
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The trend is your friend

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