Breaking down the charts on this outperforming medical device maker
Boston Scientific was a recent trade idea for CappThesis clients. Since it has yet to break out, I wanted to both share the idea withCNBC Prosubscribers and also highlight the process I typically use to come up with trade idea candidates like this. This involves starting with aplain chartand then working through different variations, with the goal ofbuilding a stronger casefor it to become a recommended “chart trade.” BSXinitially caught my eye through my normal process of screening for technically constructive stocks. Sometimes this is done usingpredefined screens, while other times it’s simply a matter ofreviewing hundreds of charts manually — a habit I’ve developed after decades of doing this work. Over time, one begins to take a liking to certain chart structures, and after nearly two years of writing articles, subscribers understand that many of the patterns I focus on areclassical chart formations, particularly those forming nearall-time highs. That’s exactly whatBSXhas been doing in recentmonths and weeks, as shown on this veryplain chart. The next step, of course, isdrawing the linesto confirm whether a recognizable pattern is forming. From my perspective,BSXappears to be building alarge cup-and-handle formation, with a potential breakout zone in the$106–$108 range. Other traders may view the setup differently, but I find it far more useful tocite a breakout “zone” rather than specific price level, sinceprice swings are normal. In other words, even an ultimately successful breakout may go through a few whipsaws before the big move finally materializes. Looking at this chart more closely, a few otherinteresting aspectsstand out. If we focus on the price action sinceMay, we can actually identifytwo additional bullish patterns—one in green and one in black—both of which resembleinverse head-and-shoulders formations. Taken together, these smaller patterns form part of thesecond half of the larger cup-and-handle structure. In effect, we’re looking atthree potential bullish patternsdeveloping simultaneously. This means that ifBSXdoes break through the$106–$108 zone—which it is attempting to do right now—we could seethree bullish breakouts occurring at once. That scenario provides an even greater sense ofconvictionthat a sustained breakout could follow. Sometimes it’s difficult to imagine a stock moving much higher when it’s alreadytesting its former highs. In fact, some traders refuse to buy breakouts atall-time highsbecause of how far a stock needs to advance just to reach that point. One useful trick to view this differently is simply toadd more space above the chart. Depending on the trading platform, this can be done in various ways. OnStockCharts.com, for example, simply adding any indicatorabove the pricecreates the visual impression thatBSX has room to advance — especially when viewed over amultiyear horizon. In fact, we actually need toadd more space to the top of the chartin order to properly display themeasured move target. In this case, we measure the pattern from theApril lowup to themost recent high, which projects a target near$128. That’s not only agood deal higher than the current price, but also well above the prior high point—underscoring the potential strength of this setup. Even after going through those steps, some prospective investors could remain unconvinced that a stock can move materially higher than itsprior high point. That’s why another step I often take is tozoom way out — switching from adaily chartto aweekly (and sometimes monthly) chart, changing the scale fromlinear to log, and highlighting how often a stock has already broken out from amultiyear or multimonth bullish patternand continued higher over time. Not every stock shows this, but in the case ofBSX, that’s exactly what we’ve seen since2022. The stock has broken out to new highsfour separate timesfrom patterns very similar to the current one. And each time, it didn’t seem likely that there would be significant additional upside—but the stock proved otherwise. BecauseBSX remains in a long-term uptrend, it tends to useextended consolidation phasesaslaunching padsfor the next leg higher. If that pattern holds again, BSX could once more leverage the bullish formations we first identified on thedaily chart—and in doing so, potentially achieve the$128 target… and beyond. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
