Current Stock Market Rally Offers Tight Entries On Four Recent Breakouts

On a long road trip, you’ll turn off for gas or a quick bite to eat before moving on. In the same vein, top stocks may run up from a buy point but then pause — not long enough for a proper base but still offering a follow-on entry. Boeing supplier TransDigm stock, Paycom stock, RingCentral stock and Mercury Systems stock are all in three-weeks-tight patterns as the current stock market rally grinds higher.

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TransDigm (TDG) and Mercury Systems (MRCY) are both aerospace suppliers, with Mercury. Paycom Software (PAYC) and RingCentral (RNG) are enterprise software names. Both groups are in the top 10 out of the 197 industries that IBD tracks.

Mercury Systems stock, Paycom stock and RingCentral stock all boast best-possible 99 IBD Composite Ratings. TransDigm has a 97 Composite Rating and is also an IBD Leaderboard stock. All-time stock winners often have a Composite Rating of at least 95 near the start of big runs.

Three-Weeks-Tight Pattern

The three-weeks-tight pattern forms when a stock closes within 1% to 1.5% of the prior week’s close for two straight weeks. (The action can look messy on a daily chart. Use weekly charts to spot tight patterns.) Volume is quiet in this time as the stock consolidates not too long after breaking out from a proper base. This signals institutional investors are comfortable with the stock’s advance.

The buy point is 10 cents above the highest price in the pattern, often not the left side of the consolidation. Try to buy as close to the buy point as possible with a 3-weeks-tight.

The three-weeks-tight is generally an opportunity for existing holders to add a few more shares, rather than to start a new position.

Paycom stock, also on the IBD 50 list, has a three-weeks-tight entry at 186.10. RingCentral stock has a 109.94 buy point. TransDigm stock is at 440.28.  The three-week-tight entry for Mercury stock is 67.95.

Current Stock Market Is Tight

In many ways, these three-weeks-tight patterns reflect the current stock market rally. The S&P 500 index and Dow Jones have both been trading tightly over the past few weeks. Top stocks follow current stock market action. You can also see this with other recent breakouts that are now holding in buy zones, such as Starbucks (SBUX) or Palo Alto Networks (PANW). The three-weeks-tight patterns are just breakouts like Paycom stock that had more power or happened a little earlier.

Cybersecurity ETFs

The RSA cybersecurity conference kicks off Monday. Several top cybersecurity stocks, including Palo Alto stock, have broken out, while others are near buy points. But investors can play the cyber uptrend via top ETFs. One option is the ETFMG Prime Cyber Security ETF (HACK). Another is the twice-levered Direxion Daily Cyber Security Bull 2X Shares ETF (HAKK). ETF plays focusing on a specific group, especially leveraged ones, should be seen as short-term plays.

Investors can choose to buy ETFs at any point, depending on one’s investing strategy. But you can buy ETFs like stocks. The HACK ETF closed Friday at 40.30, about 1% below a 40.82 cup-base entry.

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