Lions Gate Entertainment (LGF), up 98% on the year, is in a similar position as GameStop, although the break below the trendline has unfolded in a much slower fashion. With LGF at this level, traders should take the Hunger Games hype with a grain of salt.
Another momentum stock that is teetering on the abyss is Best Buy (BBY). After defying all gravity — and logic — with its 233% year-to-date gain, BBY is approaching territory that signals a potential breakdown is at hand.
On the other side of the coin, this same use of trendlines shows a number of momentum stocks that could have additional upside.
In these cases, the lower trendlines serve as a clear reference point where longs can set their stops.
Not everyone believes in the value of technical analysis, but it’s particularly useful among momentum stocks because traditional metrics such as fundamentals and valuations are out the window.
What’s the appropriate valuation for a company with a game-changing technology that’s currently losing money, such as the Teslas and Twitters (TWTR) of the world? Not even the professionals know for sure.
But what is knowable is price — and that’s where the charts are the most valuable.
Momentum stocks represent the deep end of the pool for individual investors, and every possible tool helps. Over time, using these trendlines can prove invaluable in navigating this fast-moving area of the market.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.