When it comes to entering a stock hitting a 52-week high, I prefer to look for ones hitting a “NEW” high. To me, his would be a stock that hasn’t hit a new 52-week high in quite some time. In addition, and more importantly, I want the stock to have broken through a key area of resistance. This way I know that it wasn’t just any move higher, it was a key breakout. One such stock that fits that description would be that of Six Flags Entertainment Corporation.
Six Flags Entertainment Corporation owns and operates 19 regional theme, water, and zoological parks in North America. Its parks offers a selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues, and retail outlets. Six Flags Entertainment Corporation also offers various multi-media marketing and promotional programs at its parks, as well as arranges for local radio and television programs to be filmed or broadcast live from the parks.
Please take a look at the 1-year chart of SIX (Six Flags Entertainment Corp) below with my added notations:
As you can see from the chart above, SIX had been trending lower from July through October. The stock broke through its down trending resistance (red) 3 weeks into October. Since that break, the stock has been rallying higher, while outperforming the overall market. Lastly, SIX has been running into resistance at $40 (navy) since June.
That $40 resistance meets my definition of a clear resistance level that would signify an important 52-week high breakout if SIX could manage to break above it. Last week the stock finally broke through that $40 resistance. Although it would have been a more convincing breakout had it occurred on a larger volume increase, this is the “NEW” 52-week high resistance breakout I like to see. From here, the stock should be heading higher, most likely on a new uptrend.
The Tale of the Tape: While trending lower for (4) months and then rallying for the next (3), SIX formed a key resistance level of $40, which was a 52-week high breakout when SIX broke above it. This should signal higher prices ahead for the stock. A long trade could be entered now, or if SIX pulls back a bit further to $40, with a stop set below that $40 level. A break back below $40 would negate the forecast for a move higher.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT