While history doesn’t exactly repeat itself, it does often rhyme. This is why, when going over the charts of stocks that we’re interested in, we’ll often hunt for precedents –that is, past Monster Stocks –that formed similar-looking patterns. I was recently going over the chart for SolarWinds (SWI), for example, and was looking for some past IPO’s that went on to score large gains. I came across SunPower (SPWR) and became interested in knowing what the market was like as that stock began forming its first base.
Today’s Nasdaq:
The Nasdaq in April & May of 2006:
Interestingly enough, I saw some similarities between the Nasdaq of then and the Nasdaq of now. In April and May of 2006, the index was finding the 2350 level hard to hold, much like the 2200 level today. Consider that you had six distributions days (4/20, 4/21, 4/28, 5/3, 5/9, 5/10) before that 2% drop on 5/11 too. And as the chart shows, things only got worse from there…and in a hurry.
I’m hardly suggesting that today’s Nasdaq is about to pull a similar stunt, even though it has five “official” distribution days and, one could reasonably argue, really has six. This is an entirely different market altogether, I understand that; to be honest, given the Fed’s present monetary policy, I am far from certain about what is going to happen next. However, I find it helps to study past markets to get a sense of how stocks, even those of fast growing companies, may behave when they face similar market environments.
Anyway, SPWR ended up gaining 275% inside of 8 months, a true monster run. I highlight that run below. While it would be moronic to claim that this or that stock will go on the same kind of run as the stock one is using for a precedent, one can certainly use these past examples as “road maps,” if you will, a way of navigating in the market and making better informed decisions.
Please bear in mind that this is an exercise in a technical precedent only, as SWI and SPWR aren’t even in the same space. So, in this regard, it’s a “loose” study of a potential technical precedent.
Still, if the present market does indeed go on to pullback from here, we’ll have our study of SPWR’s impressive run as an example of just how important it is to stick with these kinds of high growth stories, no matter how “ugly” their equities may at times look.
Recent Comments