When the general market is recovering from a pullback, there can be great opportunities to buy on the dip. But how do you identify which stocks to buy?
In making this critical judgment, the StockCharts Technical Rank (SCTR) can be an essential tool.
There are many ways to use the SCTR report. One way is to use the top-performing stocks, similar to last week’s SCTR report. Another is to find stocks that have increased the most from the Top Up tab on the SCTR Reports panel on Your Dashboard. As you can see, Dell Technologies, Inc. (DELL) is at the top of this list (see below).
FIGURE 1. TOP-UP SCTR STOCKS IN THE LARGE-CAP CATEGORY. The SCTR Reports can be used to identify stocks that have the potential to soar.
Dell Stock’s Price Action
Does Dell look like a promising opportunity? Let’s examine Dell stock, starting with the weekly chart.
FIGURE 2. WEEKLY CHART OF DELL. The stock has broken above an upward-sloping trendline and is trading above its 52-week moving average. Watch for the SCTR score to cross 70.Chart source: StockCharts.com. For educational purposes.Looking back over three years, Dell’s stock price broke out of a trading range in the middle of 2023, exploded higher, and hit a high at the end of May 2024. Since then, the stock price has struggled, but it looks like it may be coming out the other end.
- Dell’s stock price is trading above its 52-week simple moving average.
- The stock price has also broken above the upward-sloping trendline from the March 2023 low.
- The SCTR line (see top panel) spiked higher and is shy of the 70 level.
When Should You Buy DELL?
Often, a break above 70 in the SCTR line is a sign of gaining strength. The last time Dell’s stock crossed above the 70 SCTR level was in early April 2023, when the stock was in the early stages of its uptrend. It would have been a great investment if you had entered when the SCTR crossed 70 and exited the trade when the indicator fell below 70 in July 2024.
To determine if a stock is worth buying, it’s best to look shorter-term. In this case, let’s examine the daily chart.
FIGURE 3. DAILY CHART OF DELL. The stock has crossed above its 21-day exponential moving average and is starting to gain strength relative to the S&P 500. Momentum needs to increase, and an upward trend has to be established before buying the stock.Chart source: StockCharts.com. For educational purposes.
- DELL is trending lower, although it has exceeded its 21-day exponential moving average. Strong volume, which is not evident on the daily chart, is needed to sustain the upside movement.
- If the stock gains momentum, several resistance levels have favorable risk-to-reward ratios (dashed blue lines). These levels could also serve as entry and exit levels.
- The relative strength of DELL vs. the S&P 500 ($SPX) is rising, another indication of the stock gaining strength.
The bottom line: Wait for the SCTR line to cross above 70. Then, make sure the stock is in an uptrend (series of higher highs and higher lows) and is gaining relative strength.
When Should You Exit DELL?
Since your entry depends on the stock gaining strength and momentum, it’s best to exit your position when the price action slows down. It’s still too early to jump into the stock, but identify key support and resistance levels, use them to determine your entry and exit points, and, more importantly, identify where your stop losses will be.
When a stock looks like it will rise higher, map out the different scenarios that could play out and plan a strategy for each scenario. There’s nothing better than making a well-planned trade or investment.
DELL is a stock to add to your ChartList. But there may be others to consider, which is why it’s a good habit to review the SCTR Reports. It’s a great way to catch the next big stock!