The Dow Jones, S&P 500 index and the Nasdaq composite all fell last week. That hit a number of top stocks. But the stock market action also helped a number of notable stocks form handles and new buy points. Tesla (TSLA) stock has nearly formed a handle with a buy point. Home Depot (HD) stock and Arista Networks (ANET) stock just forged handles, while FMC Corp. (FMC) stock has had a handle for weeks. But take a closer look.
A handle occurs in the upper half of a consolidation. The stock price should be flat to downward sloping, ideally on light and declining volume. It should be a minimum of five days but can for several weeks.
Simply put, a handle helps shake out weak holders just before a stock is ready to break out. That way, when a stock surges higher in strong volume, everyone who owns a position is happy. Mutual funds and other big institutions seeking to add shares must bid up the price to do so.
Tesla Stock
Shares faced resistance around 360 several times in a consolidation going back to last September. Tesla stock broke through decisively on Monday, hitting a nine-month high of 373.73. But then it tumbled to 333.63 by Friday, down 4% that day and nearly 7% for the week. If Tesla stock stays in its current patterns. it’ll have a proper handle and a 373.83 buy point.
The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is off its March lows but hasn’t made much progress since the end of October. Tesla’s RS line is well below its June 23 peak.
Tesla stock’s recent run came as Elon Musk said it was “very likely” that Model 3 production would finally hit 5,000 a week by the end of June, a critical step as Tesla runs low on cash. He also expected the electric vehicle maker to turn a profit in Q3.
The company will release Q2 production and delivery figures in the first week of July. It’s unclear if it’ll provide any specifics about end-of-June output. Still, if Tesla breaks out soon, it’s akin to a stock moving into buy range just before earnings, with the potential for big price gains or losses So potential investors may want to consider an earnings option strategy.
Home Depot Stock
The Dow Jones home improvement giant has now formed a handle in its cup base, giving it a 201.70 buy point. Home Depot stock fell 1.45% to 197.41 on Friday. The RS line is just below a new high even though Home Depot stock still has a ways to go before hitting the Jan. 26 peak of 207.60.
Arista Networks Stock
As of Friday, the networking firm has a 287.10 handle in a consolidation going back to mid-February. Arista Networks stock reclaimed the 50-day moving average on June 1 after trading below since late March.
Arista went on a powerful run in 2017, with tight consolidations along the way. In 2018, its consolidations have been somewhat messy, which is less promising. That may reflect the overall choppy market, but that in itself has made breakouts more prone to failure and shakeouts.
FMC Stock
The chemicals maker has been basing for nearly six months, with its handle forming since late May. FMC stock has a 93.05 cup-with-handle buy point. Shares found support in the handle at the 50-day. FMC stock rose 2.7% to 88.94 on Friday, rebounding from the 50-day line and reclaiming the 200-day line.
One big negative is FMC’s RS line. It’s been slumping since October and is well below where it was in early January at the left side of the consolidation.
Investors should generally look for stocks that are truly leading the market. At the very least, investors should look for a powerful FMC breakout that pushes the RS line above the high of its handle.
