Some investors like to find value plays. Some like to bottom fish for unloved companies trading at bargain basement prices. Others like to buy quality names at a pullback. Now, I have done all three of these things in the past, but by far the most successful trades I’ve ever had are the ones where I buy quality companies trading on strong upward momentum. So, when I look for quality trades to write about for 24/7 Trader, I start by looking for stocks breaking out to the upside on strong momentum.
I also like these stocks to be breaking to the upside on strong trading volume, meaning volume that is far greater than the average daily volume. In addition, I like these stocks to have a technically bullish chart pattern, and one of my favorites is a cup-with-handle pattern.
Click to EnlargeDuring my near daily screen for stocks that fit these criteria, I come up with many a familiar name, and some not-so-familiar names. Today’s screen came up with a company I suspect you may have heard of, but is not a household name in the United States. The company is Huaneng Power Intl. (NYSE:HNP), a Chinese energy company that produces electricity throughout the People’s Republic.
Year to date, the stock has been a huge winner, surging nearly 47%. In Wednesday, Nov. 28 trade, there was another big 2.65% gain in the stock, and that jump came on trading volume that was up 57% from its 50-day average trading volume. That’s what I call a breakout on strong volume of an already stellar stock, but it’s only part of the reason why I like HNP.
Technically speaking, the shares have formed a classic cup-with-handle chart pattern beginning in July and going through the present. In fact, even a subtle glance at the chart here allows you to see the not-so-subtle cup-with-handle pattern in its full glory.
I suspect that if the metrics in the Chinese economy continue to show signs of improvement, then we are going to see more buying in this bellwether energy firm—and that means another 15-20% or more upside from here in the shares here during the months ahead.
Of course, whenever you trade momentum stocks you always could be wrong. So, to protect your position from sustaining any serious downside, I recommend placing a stop-loss order in about 8-10% below your buy price.
At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.