Learning to invest, like any serious discipline, is a lifelong process. Curious investors constantly discover new tools and tricks of the trade to make them more effective.
One graduate-level tool that is also easy to pick up for those just learning to invest is the concept of “inside days.” A small chart detail that can be telling, an inside day can cue investors that just maybe a stock is about to put match to powder.
On a daily chart, an inside day is one in which the session highs and lows remain within the highs and lows of the prior session. On a weekly chart, same deal, but using the weekly ranges as gauges.
Learning To Invest: A Bullish Indicator
Inside days that follow wide-ranging, high trading-volume days can be bullish. The “shorter” range of the inside sessions shows a tightening of trade — even more so if it occurs in quiet turnover. A rise in volume builds pressure for the stock to break the limits of the inside session. The question then becomes one of whether the stock will break out of the tightened range to the upside or to the downside.
Stock Market ETF Strategy And How To Invest In The Current Uptrend
To get a feel for which direction shares are likely to go, consult the stock’s other technical metrics. Is the relative strength line at or near new highs? Is the up/down volume ratio at the very least above the minimum benchmark of 1.0, and preferably above the 1.2 to 1.4 range? Is the Accumulation/Distribution Rating a C or better? If all of these gauges are in order, chances of an upward move are good, although still not guaranteed.
IBD Leaderboard stock ServiceNow (NOW) and IBD 50 listing Veeva Systems (VEEV) provided a couple of good examples of inside days during the second quarter.
ServiceNow, Veeva Systems Breakouts
ServiceNow lodged a big up day on a 94% rise in volume on April 30, 2020. Shares finished high in the session’s range, and 3% below a cup-base buy point at 363.05. ServiceNow’s relative strength line also drove to a new high during the session, a sign of strength.
The following day, a Friday, the stock pulled back more than 3%, but the range was much narrower and trading volume was quiet (1). An inside day. The stock ended low in the session range, but the RS line held up nicely.
When the market opened the next Monday, ServiceNow punched above the inside day’s upper limit and closed near the top of the session’s range. The next day, the stock broke past the buy point on a modest increase in volume. The stock has since gained 15% above the buy point.
Veeva Systems broke out past a 177 buy point in a nine-month saucer base on April 15, 2020. Volume rose modestly and the stock slipped back below the buy point to close in the lower half of the day’s range. Shares rose and fell modestly in the following session, sketching out an inside day (2). They finished lower, in weak trade — both bullish signs.
The following day shares dipped slightly to test the short-term 5-day moving average, then moved modestly to the upside, breaking the upper bound of the inside day’s range.
The gain put in motion a methodical uptrend, which has since carried the stock 40% above the buy point.
This article was originally published July 17, 2020. Find Alan R. Elliott on Twitter @IBD_Aelliott
YOU MAY ALSO LIKE:
How Long Should You Hold Zoom Stock?
Weekend Stock Market Update: The Raging Bull Rides On
The Latest Inside Investor’s Corner
Which Stocks Are Breaking Out Or Near A Pivot Point? Check MarketSmith
View more information: https://www.investors.com/how-to-invest/investors-corner/learning-to-invest-2-breakouts-show-bullishness-of-inside-days/