The stock market has performed well lately, but you are probably unaware of just how well it has performed. Consider the fact that 40 of the 100 stocks in the Nasdaq 100 index have increased by at least 100% or more sometime during the last three years. That’s nearly half of the index doubling in price, some of them slowly, others much more rapidly, but 30 out of the forty displayed three interesting price elements just before lift off. The other ten were smoother uptrends.
The rocket fuel for a 100% increase apparently consists of three elements.
- A downtrending price move lasting two months or more, where the price declines from its recent peak by at least 40%.
- A break from the downtrend with a rapid rise back to the previous high.
- A retest of the old resistance level that shows old resistance has become new support.
Once these three elements have been put into the pressure tank, the stock is ready to make an explosive move higher. Consider the following example:
This chart shows the price of Applied Materials (AMAT) over the past 15 months. Each of the three elements are clearly labeled.
You can find many examples similar to this among the Nasdaq 100, but not all of them have the same durations for each of the three elements. What I found interesting was that the triple digit gains were first preceded by a sustained drawdown. One where the price was functionally cut in half, only to rise back to old highs and double up its price after that.
Momentum is indeed alive and well in modern markets.
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