One of the easiest ways to find top growth stocks is to use the new RS Line Blue Dot screen in MarketSmith. This is especially true in a market correction like the current one.
This exclusive MarketSmith screen focuses on ideas with market-beating performance. They could be the next big winners amid a new confirmed uptrend in stocks.
First, learn how to use the relative strength line. It measures a stock's price performance compared to the S&P 500. If the stock is outperforming the broader market, then the RS line angles upward. If a stock is performing worse than the broad market, then the line will point lower.
The RS line is the blue line on all IBD daily and weekly charts as well as in MarketSmith.
IBD readers should focus on stocks whose RS lines are hitting new highs during a stock's base formation or on the actual breakout. These stocks get institutional support during a weak and strong market environments.
Rising RS Line Plus Good Pattern Equals Top Growth Stocks
The RS Line Blue Dot feature combines the relative strength line with MarketSmith Pattern Recognition. When a stock's RS line hits a new high, while the stock is forming a base or breaking out, then the Blue Dot appears on the MarketSmith weekly chart.
According to MarketSmith Senior Product Coach Scott St. Clair, "It's the best list during a market correction." He added that it identifies the stocks that are holding up best amid the heavy selling on the major indexes.
How To Buy Stocks Using Stock Charts
Growth Stocks Had 'Blue Dot'
In the late 2019 stock market rally, several top stocks illustrated market-beating strength, including hot IPO stock Datadog. On Nov. 13, 2019, shares surged nearly 17% in the heaviest volume since the stock's Sept. 19 debut on the Nasdaq after strong Q3 results.
The IPO stock broke out above two buy points: a double bottom base-type entry at 37.97 and a cup base without a handle and a 41.44 entry. Either way, the chart action defines an IPO base.
Remember, new issues without a proven fundamental track record are extremely volatile.
In IBD Stock Checkup, Datadog stock scored a middling 57 IBD Composite Rating.
Keep in mind that brand new IPOs tend to have lower Composite scores. Why? Their EPS Ratings tend to be lower due to the lack of a long record of profits. Plus, the Relative Strength Rating covers 12 months' of action. At the time, Datadog had traded for less than eight weeks since its initial public offering.
This article was first published on Aug. 9, 2019. Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.
