A new investor might overlook the significance of an inside day. At first glance, it appears to be of little consequence: The stock makes no new high and no new low from the previous day.
Investors want a stock that is actionable and continue scrolling for options without a second thought. But the seasoned investor knows the bullish potential of an inside day. Those investors might have detected the subtle clue in Meta Platforms that caused Meta stock to stumble.
An inside day occurs when the session's highs and lows do not exceed those of the day prior. The same principle can apply to weekly charts.
To be considered as bullish signal, an inside day should follow a wide-ranging, high-volume day. The inside day should have lighter volume. Together, these form a sign that investors are holding on to their newly purchased shares.
Meta Stock And Inside Days
Rising volume on the inside day is a sign of volatility. It's likely to break out of the prior day's range sooner rather than later. But will your stock break to the upside or the downside? Your safest bet is waiting until the price crosses above the high of the day prior to the inside day.
You can get a better idea of which direction the stock is heading by checking a few of its technical metrics. Is the relative strength line at or near new highs? Is the Accumulation/Distribution Rating a C or better? Is the up/down volume ratio above 1.4 or at the very least above the minimum 1.0?
The more of these technical indicators that are answered in the affirmative, the better your chances of a break to the upside. But remember that even with all the above boxes ticked, there is no guarantee of a price rally.
Abercrombie & Fitch more than doubled since breaking out of a cup base in early June 2023.
Despite an impressive earnings report and a 31% move on May 24, 2023, the stock took a little longer to rise above the 31.69 buy point. On June 2, it climbed above the entry but pulled back the next session (1).
Meta Stock's Inside Day
Fortunately, it fell less than 1% in below-average volume. A day later, it cleared the 31.99 high in the first 30 minutes of trading and the RS line was at the highest point since the cup pattern began (2). The up-down volume ratio was 1.3 at the time.
Contrast that action with Meta Platforms earlier in 2023. The stock gapped up 20% following Q4 earnings but instead consolidated with a series of four inside days (3). Investors were disappointed when Meta broke to the downside on Feb. 9, 2023 (4). Meta continued to consolidate and formed a flat base before breaking out for good on March 16 (5).
This article was originally published Nov. 17, 2023, and has been updated.
