How To Invest In The Stock Market: Double Base Leads To Huge Gains For Inphi

The coronavirus stock market crash in late February and March 2020 paved the way for a significant new rally, resulting in some big price gains among the best growth stocks. Top chip stock Inphi (IPHI) passed a right buy point in a double bottom at the start of a new high in the stock market, resulting in a massive gain in about four months.




X



The double bottom is one of the bullish patterns that top stocks tend to experience before they make outstanding runs. Found using stock charts, double bottoms are among the cup-like chart patterns to handle and a flat bottom that investors should be looking for.

A double bottom can be identified by its W-shaped formation. In a true double bottom, the low of the second bottom will be below the low of the first, shaking the weakest investors. A correct double bottom buy point is 10 cents above the middle peak of the pattern.


IBD Live: A New Tool For Daily Stock Market Analysis


Double bottoms form over a minimum of seven weeks. Other requirements include a prior increase in the stock price. The reduction in the total base is usually 20% to 30%. However, heavily loaded markets can lead to deeper double bottoms – like the coronavirus stock market crash.

Sometimes you will see a handle form on the double bottom. It may present an additional buying point.

Inphi Double Medal

During the coronavirus bear market, the Nasdaq fell as much as 33% from its 52-week high. During that same time period, Inphi corrected 40% as it formed an eight-week double base, according to MarketSmith chart analysis. Growth stocks usually correct at least twice the general market, so a 40% decline was not unusual.

During the first leg down, the stock bottomed out at 69.07 on February 28, 2020 (1). After a brief rebound, the stock fell back through the 200-day long-term moving average, and eventually came out at 55.72 on March 23. (2). Remember, the second low must undercut the first low to create a proper double bottom.

On April 6, Inphi was one of the first stocks to break out above a new buy point, following the April 2 follow-up. On the separate day, Inphi stock surged past a buy point of 84.57 (3), rising more than 9% and ending the session in a buy zone that topped out at 88.80. The problem was a lack of massive volume on the breakout; heavy volume did not appear until days later.

But a surging line of relative strength (4) offered a sign of immense strength. During the next few sessions, shares expanded rapidly.

After two successful tests of the 10-week moving average support level, Inphi stock rallied as much as 67.9% from the buy point through August 4 as a result of the company’s strong earnings results.

The Santa Clara, California-based company earned an adjusted 95 cents a share on sales of $175.3 million in the quarter ended in June.

This article was originally published on August 12, 2020, and has been updated. Follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.

YOU MAY ALSO LIKE:

Top Growth Stocks To Buy And Watch

The IBD Stock Market ETF Strategy

Dow Jones crash survival guide

Find Winning Stocks With MarketSmith’s Pattern Recognition & Custom Screens

Looking For The Next Big Stock Market Winners? Get Started With These 3 Steps

Leave a Reply

Your email address will not be published.