In the stock market there are always opportunities, but taking reasonable risk and realizing profit potential has a lot to do with matching your strategy to your environment. Stock sectors are more likely to outperform or under perform relative to things like interest rates, a recession, an expansion and so on.
The current market environment has been supportive for most sectors, as bull markets usually are, but little by little hints of a slowing economy are beginning to surface. This is a perfectly normal part of the business cycle, but it does not mean the economy will go into recession over night. There is still potential for growth, and the question you should be asking is: where will this growth most likely be realized? This report will highlight one stock that is part of the tech sector that is poised to outperform as long as the bulls keep running.
Don't Fight The Froth.
Remember, stock prices are driven by sentiment. And sentiment is irrational most of the time. This means markets can continue to push highs even in the face of subtle signs of a slowing economy.
When the crowd sentiment swings to an optimistic extreme, it will shrug off many unfavorable reports, until something major catches the herd by surprise. Something like a major bank going out of business, or an unexpected change in monetary policy.
Right now, while the stock market has been flirting with highs and appearing to peak, buying continues. With first quarter earnings coming this month, forward guidance is going to be a key factor that drives the bull to new highs (S&P 3K?) or not.
Small Cap With Big Potential?
The question we ask is: If the market has room to run, what can we get into over the short term that still offers attractive reward/risk?
Answer: small cap growth. This means the tech sector. And within this sector we found a group of stocks that are involved in cloud services and security.
Small cap growth means these stocks are highly speculative and do not offer much incentive to hold over the long term. They are attractive because of their potential price appreciation. That’s it. Most of the time these companies are not even generating a profit, but as short term traders, we are only looking to benefit from the continued optimism or “froth” as Andrew refers to it.
Frothy markets are common near market tops. They present relentless and often senseless buying. The perfect environment for most stocks, but particularly high potential and speculative growth stocks.
When the froth goes away, so will these stocks. Andrew will be showcasing a group of them for our more aggressive portfolio strategies. One of the technical highlights from this group is BAND.
Bandwidth Inc. (Ticker: BAND).
Jump On The BANDwagon?
Bandwidth Inc. (BAND) is a communications platform as a service company. They sell software application programming interfaces for voice and messaging using their own IP voice network. Who cares right? Look at their chart since the beginning of the first quarter.
New member? Listen to our recent podcast about databases vs. blockchain and how to buy Gold with your Bitcoin here.
Currently BAND is presenting a bull flag formation. Based on the “frothiness” of this chart, this is ideal for a momentum continuation higher. Our profit target zone is between the 74 and 78 area (based on proportional price projection).
If the retrace continues lower, price can test the 64 area (double bottom) OR reach as low as the 56 area (.382 relative to the swing low of 33.73)
There is NO signal at the moment. Only potential. IF price breaks out of the bull flag, we will consider a momentum continuation pattern. IF price retraces to a respective support level, we will consider a bullish reversal pattern. Remember this is not a long term hold, only a short term swing trade which has an outlook of a few weeks to a month.
In summary. BAND is just one of a group of highly speculative growth stocks that are poised to benefit from the current environment. This is not a fundamental play, so there is no reason to get wrapped up in that confusion.
The environment dictates the rotation of money flow. And as long as the optimism and low interest rates remain, there is potential for stocks that offer nothing more than potential price appreciation. Do not forget that eventually the business cycle will change and these stocks will be out of favor quickly. Ride the bull until its full.This is a Free Member article. To receive email notifications when new articles are available, click here.