Why are 52-week high stocks great to buy or short sell?
A stock's 52-week high or 52-week low is an important indicator for many investors in determining the current value of a stock or predicting a trend in a stock’s performance.
Some investors find that buying stocks at their 52-week highs a reasonable trading strategy. The idea is that for the stock to be at its 52-week high, it must mean that the Company is doing something right and the stock may continue rising.
The usual rational behind this kind of strategy is that if price is at a new 52-week high, there will be enough momentum for the price to continue moving up.
Buying a stock that is near a 52-week high or at it a 52-week high is like buying on strength. Statistics have shown that stocks making new highs have a tendency of making even higher highs.
Of course one has to look at several fundamentals before jumping on.
A savvy investor should look for the best opportunity to get in. This can include the stock trading within 10% of the 52-week high. Jim Cramer actually recommends waiting for any new-high list to come down 5% before actually starting a position in them.
A stock that is still within 10% of its 52-week high is within striking distance. Other things to consider are whether or not analysts have buy ratings on them and what price targets have been made. Are they higher than the 52-week high?
Look for reasons the stock could continue to move higher. Look at year-over-year results, have they been improving? Look for companies with limited insider selling and a low short interest.
The best 52-high buy will usually have the following: it should be in an uptrend, have little resistance overhead, the stock chart should look like 45 degrees, and it should be at an all-time high.
There is also a thing called the “The 52-week new highs on Friday rule.”
On a new 52-week high, when the market closes at or close to its high on a Friday, buy long and go home long for the weekend.
Exit the long position on the opening of the following Tuesday. If the market opens sharply lower on Monday, exit the position immediately.
Another option with 52-week highs is to sell short when the stock is in the 10% range of it. Rather than invest long on it, many use this strategy because they are confident that the stock will not go past its 52-week high. Same fundamentals can apply here – looking at a Company’s track record, what they have lined up, and if analysts have a sell rating on it.
There are many ways to find stocks trading at their 52-week highs. One of the easiest is by signing up for the email alerts on this site. Alerts are sent out regularly about stocks hitting new 52 Week Highs and Lows that could break out. Subscription is free. Cancel Anytime
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