3 Stocks Within Buy Range After Clearing Bases

Tronox NYSE: TROX, Monarch Casino & Resort NASDAQ: MCRI and FedEx NYSE: FDX are among stocks breaking out of consolidations in the past week. 

Today’s investors and traders have it easy when it comes to identifying bases, which are areas on the chart where a stock pauses after one run-up, before resuming its climb. 

In the mid-20th century, investors knew about these areas of consolidations but didn’t have the technology to easily capitalize on them. 

For example, in the 1950s, Nicholas Darvas, a professional dancer, tracked stock prices from the Wall Street Journal and constructed his own charts. He published “How I Made $2,000,000 In The Stock Market” detailing the system he used to identify points where a stock was likely to race higher.

Fortunately, today we can use all manner of charting software, including the one right here on MarketBeat. 

Tronox, which makes titanium dioxide and other chemicals used in a range of products such as plastics, paint and paper. The company also mines and processes titanium ore, zircon, and other materials. 

The stock cleared a buy point above $21.36 in heavy volume on April 26. Volume increased in the next session, confirming the breakout. 

This stock meets the criteria for clearing a base with a proper set-up. Prior to pulling into a consolidation in late February, the stock had run up for five months in a row. Its one-year return is 247.68%. 

The company reported its first-quarter on April 29, earning $0.43 per share on revenue of $891 million, year-over-year increases of 48% and 23%, respectively. That kind of top-and-bottom-line growth is exactly what you want to see when buying a stock that’s clearing a base. 

The stock is still within a buy range, closing Monday at $22.17, up $0.97, or 4.58%. That price is just 3.8% above its buy point, which is good. Ideally, you’d like to buy before it becomes 5% extended from that point, as you may get shaken out in even a small pullback.

Monarch Casino & Resort bolted 9% on April 29, following a first-quarter report that beat estimates. Revenue of $75 million was a new high for the company, which operates the Atlantis Resort in Reno, Nevada and the Monarch Casino Black Hawk in Colorado. 

The stock began forming a cup-with-handle base in mid-March, following a one-year rally to the tune of 138.36%. This is a small cap, with a market cap of $1.35 billion. Despite that strong rally, it’s had some back-and-forth price swings over the past year as it marched higher. 

The base itself was picture perfect. It consolidated into an orderly cup shape, accompanied by light volume, a sign that big investors were holding shares rather than heading for the exits. On April 16, it began shaping a handle with a buy point of $68.41, which it cleared in above average volume on April 29. 

Earnings growth accelerated over the past two quarters, and revenue growth resumed after three-quarters of year-over-year declines. In the earnings statement, CEO John Farahi said even in this blowout quarter, the company was operating “under continued state-imposed capacity and other restrictions, which negatively impacted hotel and food and beverage performance.”

FedEx, a company that needs no introduction, delivered on the promise of its cup-with-handle base, flying 4.91% on Monday to pass its $294.76 handle buy point in nearly double average volume.

The move came after two analyst upgrades on the stock. It’s probably not surprising to anybody that FedEx’s sales and earnings both accelerated in the past two quarters, as online buying gathered steam during the pandemic. 

Analysts don’t expect that momentum to slow anytime soon, with Wall Street eyeing earnings per share of $17.92 this year, a gain of 89%, and $19.91 next year, up another 11%.

The stock is up 159.86% over the past year, largely thanks to a 20% gain in July 2020 and another 30% in August, as the company’s strength during the pandemic became clear. 

This stock is in buy range, closing Monday at $304.55, up $14.24 or 4.91%. That’s just 3.3% above the handle buy point.