Classic Technical “Set Ups” – Part III

In the last two days, we shared classic technical analysis "setups" that we pulled from a report recently issued by technical analyst Frank Cappelleri and his excellent service, CappThesis.

As a reminder – we found Frank through another excellent newsletter called The Chart Report. You can follow them on X/Twitter here and subscribe to their free daily newsletter here.

You can also follow Frank and CappThesis on X/Twitter here and subscribe to his newsletter here.

The two setups we previously discussed were a “Bullish Pattern Breakout – Uptrend" and a "Bullish Pattern Breakout – Downtrend."

Both of these patterns are very popular amongst technical analysts. Frank does a great job of identifying and explaining these in his newsletter.

For today's HX Daily and our final description of a classic setup, we will share what Frank calls a "Buy The Dip In An Uptrend" pattern.

Those of you familiar with our TRADING strategies' methodologies – HX Trader and HX Income – will recognize this pattern.

We describe it as buying winning stocks that have become very oversold and begun to recover.

While the technical patterns Frank looks to identify are slightly different from those that trigger our buy signal, they identify most of the same stocks.

As with the other two ideas - we have also added our own “quantamental” analysis to Frank’s idea. “Quantamental” is combining quantitative or technical analysis with fundamental analysis.

We look for momentum in the operating fundamentals of the stock to back up the technical analysis.

Here is the idea.

3) BUY THE DIP IN AN UPTREND

The stock Frank identified is ride-sharing leader Uber Technologies Inc (NASDAQ: UBER). Here is what he wrote…

“UBER has been in a free fall since topping out in early March, but over the last few days it's found support near its former breakout zone from January. That lines up with the 38.2% retracement of the entire May'23 – March'24 extension. With its 14-day RSI making higher lows over the last four weeks, it's flashing a positive momentum divergence, as well.

The first target on a price flip higher would be the May 6^th spike high near 73.80.”

Here is the chart…

This idea is a perfect fit with our core TRADING strategy.

(Note – Frank published his note on June 4th, and the stock has already begun to bounce. It is +6.7% since he published.)

For this analysis, we will jump right into our analysis framework.

First, the stock is in a well-established uptrend. You can see that from the stock chart above.

Second, you can see the "relative strength index" or "RSI" chart at the bottom of the chart above. It briefly traded below the key 30 level on April 30th and immediately traded back above it. That wasn't the bottom in the stock, but it rallied 30 days later.

These two technical signals fit within Frank's framework. Now, let's look at it with our "quantamental" framework.

We like to look for companies with earnings growth. Here is a table showing the EBITDA growth at the company across the last few years…

In thirty years on Wall Street, this is one of the most incredible group of numbers we have ever seen!

They went from losing a HUGE amount to now making a LOT of money. We have never seen anything like it…

As they swung to profitability, they also saw rising estimates. Here is the chart of the analyst's estimates for EBITDA for 2024, along with the stock price…

They moved from slightly less than $5 billion in June 2022 to $6.2 billion today. 

As discussed yesterday with Pfizer Inc. (NYSE: PFE), you can see that the share price has tracked closely with these revisions.

They also have been beating their quarterly numbers. Here is how they have performed versus analysts' estimates for quarterly numbers across the last few years…

They have consistently beat the number.

Why was the stock down so much?

Like many stocks we have identified in our TRADING publications, the stock has been up a lot since the stock market rally in July 2023.

The stock had sold off going into their earnings report on May 8th, but there was some "noise" around gross bookings in that report. 

Again, this is similar to many other stocks we have seen recently. They had seen significant run-ups with the stock market since late last year; they were consolidating and then reported strong numbers but with one (minor) metric that was slightly disappointing.

It is also a setup we have seen for many decades that consistently generates good money-making opportunities.

That is precisely what happened here. The stock is up almost +7% since Frank mentioned it a little more than a week ago.

We are very grateful to have had Frank join us on the HX Podcast. As we have said many times in the last week – we are very impressed with the clarity of his analysis.

We also enjoyed sharing these three classic technical setups with you this week and hope you found them educational. Now, let's go out and make them profitable!