The stock market is a fast-paced environment and an excellent avenue for building wealth for savvy investors. But it’s not all sunshine and rainbows. While it offers an opportunity to earn a lot of money, it also comes with the risk of losing all your money. The good thing is that investors evolve with the markets, and sophisticated strategies are available for serious participants to make the most out of the financial market. Indeed, the stock market moves in cycles, which also brings opportunities to investors who are astute enough to spot them.
In this article, we’ll look at price action strategies. Price actions analyze basic price movements of securities to identify potential entries or exits without using indicators. By identifying areas of support and resistance and how prices behave in those key areas, you can create a trading strategy to buy a security when it hits the target area. While it has its limitations, we can always add flavor to the strategy by using complementary indicators like the Relative Strength Index to understand the strength of the direction of the security. Using complementing strategies helps increase the effectiveness of other stand-alone strategies when giving out synergistic analysis.
Now, let’s look at some stocks with potential trading potential that should be on your watchlist.
VSE Corporation (VSEC)
VSE Corporation is an aftermarket and services company operating in three main segments: Aviation for aftermarket distribution and repair for global customers in the military & defense, cargo, aviation, and aviation sector; Fleet segments for its inventory, e-commerce fulfillment, supply chain support, and logistics; lastly, Federal and Defense segment which offers, repair & overhaul, logistics & sustainment, and aftermarket maintenance for military ships and vehicles.
VSEC has recently signed an agreement with Honeywell International for a perpetual license agreement to exclusively support its four key engine platforms and fuel control systems. The company has also announced its acquisition of Desser Aerospace alongside Loar Group to further accelerate its business growth through the combination of its expertise. Analysts highly rate the company based on their most recent “Strong Buy” recommendation.
What do you do now?
VSEC is trading near the midpoint of its price range between $46.00 - $58.90. Price spiked after it touched the “oversold” territory of its 14-day Relative Performance Index (RSI), indicating a solid buying influx from investors. Investors who want to buy into this bounce may wait for prices to settle and give a buy signal around the $51.10 area or look into intraday charts for short-term signals like moving average crossovers or continuation candlestick formations with an immediate previous high target.
Booz Allen Hamilton Holding Corporation (BAH)
Booz Allen Hamilton Holding Corporation is a holding company that offers consulting, engineering, analytics, and cyber solutions to various industries, which include the U.S. government, non-profit organizations, and major corporations. Its services range from AI and Machine Learning to Data Science, Quantum Computing, and Predictive Modeling. BAH also offers consulting services that help solve client problems and develop solutions for human capital and business strategies.
BAH was recently awarded a $630 million contract by the U.S. Space Force to integrate next-generation surveillance, reconnaissance, tracking, environmental monitoring, and space-based missile warning support system. In addition, a previous minor contract was awarded to BAH to support the Royal Saudi Land Forces and is set to be completed by 2028. This significant news propelled BAH’s price over the last few weeks.
Should you buy now?
BAH is currently trading near a short-term resistance at $116.71. Prices recovered after dropping to the $106.60 area after its run-up from an earlier $87.99 low to $125.19. This healthy correction enticed buyers to jump into BAH after it went oversold. 14-day RSI also went back into bullish territory and was supported by substantial volume. Investors willing to buy into BAH may either wait for the breakout on the short-term resistance or wait for a retest on the lows to confirm the continuation of the trend.
Collegium Pharmaceutical, Inc. (COLL)
Collegium Pharmaceutical, Inc. is a specialty pharmaceutical company specializing in pain medication portfolio. This includes its Xtampza® ER, which is an abuse-deterrent, extended-release (ER) oral formulation of oxycodone, and Nucynta products that come as an extended-release (ER) and immediate-release (IR) formulation. COLL is focused on creating pain relief products that aim to deter the misuse and abuse of these medications. Its Xtampza® ER utilizes its patented DETERx to control the release of the medication's active ingredient and make it harder to abuse the drug.
Collegium Pharma performed well in its latest quarter. COLL’s net revenue grew by 10% YoY, and adjusted EBITDA grew by 21% YoY. Revenue from Xtampza® ER also increased by 24% YoY. Additionally, the FDA recently approved Nucynta® Oral Solution and Nucynta® Immediate Release for use in children ages six and up. This approval is another successful step toward the company’s goal to acquire a 6-month patent exclusivity extension for the whole Nucynta Franchise.
Should you wait?
COLL is retesting its previous breakout on its short-term resistance-turned-support area around the $22.70 zone. The 14-day RSI shows that the price is still bullish. The previous day's candle may give investors another chance to pick up shares as it shows signs of retesting its support. Investors looking to trade COLL may want to wait for the price to show exhaustion and then a buy signal on the support area.
Final Thoughts
Understanding price action is one of the best tools any trader or investor can have to build an edge in the market. Furthermore, identifying key areas where prices may move or react can help optimize entries and maximize your earning potential. However, proper risk management is required should the price stay in your preferred direction. So remember always to cut your losses fast and let your winners run, as investing and trading is a marathon, not a sprint.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
