What goes up, must come down.
Well … sometimes.
I see this dangerous logic play out in trader’s minds all the time. They think that when good things happen, the tide has to change.
After an extended rally, stocks can’t go any higher. Right?
The stock market constantly defies laws of gravity, logic or other rules we live by in normal life.
And often, the stocks making big gains are EXACTLY the stocks you want to buy for even bigger gains.
In today’s Quick Takes, I’ll give you an example of a stock that’s showing this exact pattern. Plus, I’ll share a few stocks that are doing the opposite — and show why you want to avoid them. That’s all in the newest Quick Takes video right here…
But today, we have to talk more about this bad trading habit.
New highs are a consistent tricky spot for both skilled and rookie traders. They’re often overthought. When really, your response to them should be simple.
So today, I’ll show you exactly how to handle them. And when you learn this, you’ll have an edge that a vast majority of traders lack.
Don’t Fight New Highs
You’ll recall back on May 19, I told you tech stocks were primed for a rebound after being in the doldrums since early April. Here’s what I wrote at the time:
It’s no secret that tech stocks have led the latest volatility we have seen in the market.
The Nasdaq 100, made up of mostly tech companies, has slid 7.5% over the past few weeks.
If you’re like me, you’ve been waiting for the perfect opportunity to load up on these beaten-down companies and ride them higher over the next few weeks.
Well, my friends, that time has come.
Well, I hope you took my advice, because the biggest development last week was the Nasdaq 100 hitting a new all-time high.
Like I said, most traders don’t know how to deal with big new highs. Either they want to try to time the top and make their millions shorting the market like Michael Burry, or they want to ignore them altogether … and dumpster dive for stocks they feel are unknown and on the verge of a big rally.
Or even worse, they try to “bottom fish” and time the low in a stock that’s taking heat.
Being right with these strategies is crazy difficult.
Call it what you want, but I’d much rather make money in the markets consistently than “be right” in a big way, one time.
Yes, there’s money to be made in this strategy if you can time it right. But that’s just it: You have to get the timing right. That’s hard to do.
The easy money is made by riding the trends. And there’s no better sign of an easy-money trade than a new all-time high.
(In fact, I’ve designed an entire options strategy around the concept that stocks continue moving after big earnings spikes — another goldmine strategy most traders ignore. It’s averaged a 20% gain on an average hold time of just 30 to 60 days, winning on nearly two-thirds of the recommendations.)
Let me be clear: New highs are NOT a reason to sell or short. In fact, they’re a reason to buy — or trade the trend by buying call options or selling put options.
Thing is, this applies just as much to an individual stock as it does to a large index like the Nasdaq 100.
Let me show you…
A Fresh Breakout Means Bullish Action Ahead
One perfect example right now is Rambus (Nasdaq: RMBS), a semiconductor stock.
Now, the semiconductor sector has faced pressure this year due to supply shortages. But remember, you shouldn’t fight a strong trend…
And RMBS just hit a new 52-week high.
As we now know, it doesn’t get any more bullish than that. And it’s the No. 1 reason Rambus ended up on my Bank It list today.
In my latest Quick Takes video, I’ll go over exactly why I love to see new highs in a stock like Rambus.
Plus I’ll show off a few stocks trending in wedge patterns … and another one going through a potentially bullish breakout and retest.
Just click below to get my full analysis…
Chad Shoop CMT
Editor, Quick Hit Profits
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