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Mastering the Double-Bottom Pattern (Unveiling 3 Intriguing Setups in Today's Market)
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A double-bottom base is a chart pattern commonly used in technical analysis to identify a solid reward-to-risk zone in a stock. Double-bottom base structures take on a shape like a letter W and have two distinct lows separated by a peak in between. Though many technicians often look for double-bottoms, not all are created equal. In 2020, chip leader Nvidia ((NVDA - Free Report) ) gave investors a classic double-bottom entry. Below is a marked-up chart for reference:
Image Source: Zacks Investment Research
Below are 5 key characteristics to look for in a double-bottom:
1. Uptrend into the base structure: Though many investors tend to use double-bottom patterns for bottom fishing purposes, I have found the most success using them in already trending stocks. The two reasons I look for uptrends before the base forms are uncomplicated. First, picking bottoms is a challenging, unnecessary endeavor that can be risky. Second, trends tend to persist – we are simply looking for digestion in the trend to jump on board.
2. Shape: The second dip in the pattern should undercut the first dip because a drop below a significant support level tends to shake out “weak hands”.
3. Key Reversal Bar & Volume Blowout: The second dip often has a key reversal bar where the price tests lower levels and reverses course forming a “hammer candle”. Volume should also drastically increase in this zone as weak holders get shaken out and strong buyers flood the stock.
4. Confirmation / Buy Zone: Investors are best served to wait for the pattern to complete rather than predicting when and if it will occur. Price should move above the middle peak and claw back above the 50-day moving average. Often, price digests in this zone before taking off.
5. Fundamentals Matter: Don’t forget that buying fundamentally strong stocks is the best way to exploit a technical pattern. In other words, whittle down a large database of stocks based on fundamentals, and leverage technical patterns to enter the stocks and manage risk.
3 Stocks Carving Out Double-Bottom Base Structures
Mobileye Global Inc ((MBLY - Free Report) ) is at the forefront of the autonomous driving and advanced driver-assistance system technology space. While you may not have heard of Mobileye, you most certainly have heard of its customers. The Israel-based company has partnerships with several leading automakers, including General Motors ((GM - Free Report) ), Volkswagen ((VWAGY - Free Report) ), and Nio Inc ((NIO - Free Report) ). Mobileye was spun off from Intel ((INTC - Free Report) ) in November 2022, though INTC retained some ownership. MBLY stock stood out from the pack in late 2022 for two reasons: it was one of only a handful of companies to IPO during the bear market and gained ground while the rest of tech got pummeled.
Shaking Off Excess Supply
Earlier this week, Intel announced it would be selling $1.5 billion worth of MBLY stock (35 million in shares). Though the news means more supply will hit the market, Mobileye shares show surprising resilience. Thus far this week, the stock is flat.
Image Source: Zacks Investment Research
Vector Group ((VGR - Free Report) ) is a holding company involved in two primary businesses: discount tobacco products (Liggett Group) and real estate (Douglas Elliman). Though the company mix is random – it is producing results. Last quarter, earnings jumped 29% year-over-year while sales rose 7%. Furthermore, robust earnings expectations and other factors allow VGR to earn a Zacks Rank of #2 (BUY) and the best possible rating of “A” for Value and Growth. Not only is the company executing from a fundamental perspective, but the stock price is also steady – VGR has a beta of just 1.07 which means it’s about as volatile as the S&P 500 Index.
Image Source: Zacks Investment Research
Biogen ((BIIB - Free Report) ) is a Massachusetts-based biotech giant that develops innovative therapies for treating severe neurological and neurodegenerative diseases such as Alzheimer’s and Parkinson’s disease. Most biotech stocks are stuck in the unprofitable research & development stage for years, hoping for a big breakthrough. Unlike most biotech stocks, BIIB is highly profitable. In 2022 alone, BIIB registered $10 billion in sales and earned $17.67 a share in EPS. Biogen also has another rare attribute for a biotech stock – it is attractive from a valuation perspective. BIIB’s P/E of 17x is lower than the S&P 500’s 20.11x P/E.
Image Source: Zacks Investment Research
Seasonal Tailwinds
BIIB may also enjoy strong seasonal tailwinds. While the S&P 500 ETF (SPY) tends to lose ground in June on average, the iShares Nasdaq Biotechnology ETF (IBB) is typically higher by 1.2% on average. Biogen has dramatically outperformed its peers thus far in 2023.Biogen is higher by a healthy 53.7%, while its peer group is flat.In other words, if the biotech space can “get off the mat” and join the bull market, BIIB shares should really gain steam. BIIB shares are set up in a classic double-bottom pattern.
Image Source: Zacks Investment Research
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Mastering the Double-Bottom Pattern (Unveiling 3 Intriguing Setups in Today's Market)
A double-bottom base is a chart pattern commonly used in technical analysis to identify a solid reward-to-risk zone in a stock. Double-bottom base structures take on a shape like a letter W and have two distinct lows separated by a peak in between. Though many technicians often look for double-bottoms, not all are created equal. In 2020, chip leader Nvidia ((NVDA - Free Report) ) gave investors a classic double-bottom entry. Below is a marked-up chart for reference:
Image Source: Zacks Investment Research
Below are 5 key characteristics to look for in a double-bottom:
1. Uptrend into the base structure: Though many investors tend to use double-bottom patterns for bottom fishing purposes, I have found the most success using them in already trending stocks. The two reasons I look for uptrends before the base forms are uncomplicated. First, picking bottoms is a challenging, unnecessary endeavor that can be risky. Second, trends tend to persist – we are simply looking for digestion in the trend to jump on board.
2. Shape: The second dip in the pattern should undercut the first dip because a drop below a significant support level tends to shake out “weak hands”.
3. Key Reversal Bar & Volume Blowout: The second dip often has a key reversal bar where the price tests lower levels and reverses course forming a “hammer candle”. Volume should also drastically increase in this zone as weak holders get shaken out and strong buyers flood the stock.
4. Confirmation / Buy Zone: Investors are best served to wait for the pattern to complete rather than predicting when and if it will occur. Price should move above the middle peak and claw back above the 50-day moving average. Often, price digests in this zone before taking off.
5. Fundamentals Matter: Don’t forget that buying fundamentally strong stocks is the best way to exploit a technical pattern. In other words, whittle down a large database of stocks based on fundamentals, and leverage technical patterns to enter the stocks and manage risk.
3 Stocks Carving Out Double-Bottom Base Structures
Mobileye Global Inc ((MBLY - Free Report) ) is at the forefront of the autonomous driving and advanced driver-assistance system technology space. While you may not have heard of Mobileye, you most certainly have heard of its customers. The Israel-based company has partnerships with several leading automakers, including General Motors ((GM - Free Report) ), Volkswagen ((VWAGY - Free Report) ), and Nio Inc ((NIO - Free Report) ). Mobileye was spun off from Intel ((INTC - Free Report) ) in November 2022, though INTC retained some ownership. MBLY stock stood out from the pack in late 2022 for two reasons: it was one of only a handful of companies to IPO during the bear market and gained ground while the rest of tech got pummeled.
Shaking Off Excess Supply
Earlier this week, Intel announced it would be selling $1.5 billion worth of MBLY stock (35 million in shares). Though the news means more supply will hit the market, Mobileye shares show surprising resilience. Thus far this week, the stock is flat.
Image Source: Zacks Investment Research
Vector Group ((VGR - Free Report) ) is a holding company involved in two primary businesses: discount tobacco products (Liggett Group) and real estate (Douglas Elliman). Though the company mix is random – it is producing results. Last quarter, earnings jumped 29% year-over-year while sales rose 7%. Furthermore, robust earnings expectations and other factors allow VGR to earn a Zacks Rank of #2 (BUY) and the best possible rating of “A” for Value and Growth. Not only is the company executing from a fundamental perspective, but the stock price is also steady – VGR has a beta of just 1.07 which means it’s about as volatile as the S&P 500 Index.
Image Source: Zacks Investment Research
Biogen ((BIIB - Free Report) ) is a Massachusetts-based biotech giant that develops innovative therapies for treating severe neurological and neurodegenerative diseases such as Alzheimer’s and Parkinson’s disease. Most biotech stocks are stuck in the unprofitable research & development stage for years, hoping for a big breakthrough. Unlike most biotech stocks, BIIB is highly profitable. In 2022 alone, BIIB registered $10 billion in sales and earned $17.67 a share in EPS. Biogen also has another rare attribute for a biotech stock – it is attractive from a valuation perspective. BIIB’s P/E of 17x is lower than the S&P 500’s 20.11x P/E.
Image Source: Zacks Investment Research
Seasonal Tailwinds
BIIB may also enjoy strong seasonal tailwinds. While the S&P 500 ETF (SPY) tends to lose ground in June on average, the iShares Nasdaq Biotechnology ETF (IBB) is typically higher by 1.2% on average. Biogen has dramatically outperformed its peers thus far in 2023.Biogen is higher by a healthy 53.7%, while its peer group is flat.In other words, if the biotech space can “get off the mat” and join the bull market, BIIB shares should really gain steam. BIIB shares are set up in a classic double-bottom pattern.
Image Source: Zacks Investment Research