Analyzing the market at the end of the trading day can offer a calmer, less volatile environment, allowing you to think more clearly when scanning for market opportunities. The StockCharts Technical Rank (SCTR) Report is usually a good place to start, as it lists top-performing stocks in different phases of their respective trends.
As Wednesday’s market session approached its close, I checked the SCTR Report on my Dashboard. While some stocks have consistently cycled through the top 10, others, like the fintech company SoFi Technologies, Inc. (SOFI), are relative newcomers.
FIGURE 1. SCTR REPORT FOR WEDNESDAY DECEMBER 11, 2024. SOFI is sixth from the top with a SCTR score of 99.3.Image source: StockCharts.com. For educational purposes.
SOFI is a fintech company founded in 2011. Its appeal lies in its rapid growth (and growth potential), user-friendly digital platform, and focus on younger, tech-savvy customers. Since going public in 2021, the company has positioned itself as a disruptor in traditional banking. It’s had quite a volatile run up and down, but now seems to be regaining favor among investors.
Stalling at a Congestion Range
Looking at SOFI’s weekly chart, you can see where the trend has stalled. This underscores the importance of viewing long-term price action for key levels, particularly where heavy buying and selling has occurred. Price tends to react strongly to these historical levels, leading to the notion that the market has a memory.
FIGURE 2. WEEKLY CHART OF SOFI. Bullish investors take profit at a key congestion level dating back to 2021.Chart source: StockCharts.com. For educational purposes.
You can see that the price stalled at a range where concentrated activity occurred in 2021 (between $15 and $17). Fast-forward to 2024, and buyers are taking profits at this level (see blue rectangle), perhaps anticipating that this historical congestion range might serve as a resistance zone.
If price breaks above this level, the swing highs at the $25 range and $28, SOFI’s all-time high, can serve as longer-term profit targets. But what’s the likelihood of price breaking above the current swing high point of $16.60 in the near term? Let’s look at the daily chart.
FIGURE 3. DAILY CHART OF SOFI. Can momentum fuel an uptrend following the bounce?Chart source: StockCharts.com. For educational purposes.
Note the SCTR score as it moved above the 80 line, which I consider a bullish threshold. In particular, note how it coincides with SOFI breaking above a ‘local’ high following a long basing period (see dotted magenta line).
Next, observe how price, following a strong advance, had pulled back and is currently bouncing off the middle Bollinger Band.
Is there enough momentum to support the bounce and a continuation of the trend? If you look at previous bounces, highlighted by the magenta rectangles, you can see how most bullish reversals coincided with a Stochastic Oscillator reading below (or near) the 20 thresholds, signaling an ‘oversold’ condition. The current bounce is barely above the 50-line, and this tells you that the current momentum may be weaker compared to previous reversals. While this doesn’t guarantee SOFI is going to dip in the near term, it suggests you should be cautious and look for additional confirmation, such as stronger volume or other indicators signaling bullish conditions, before assuming the trend will persist.
If, for any reason, you already went long the stock near the current price, you can place a stop loss below the closest consecutive swing lows at $14.80 and $13.00 to manage potential losses if you’re currently long.
If you haven’t entered a long position yet and are looking to buy, it’s a general principle to go long upon the breakout using the most current swing high as your entry point. However, that setup can change if SOFI pulls back further and forms a lower swing high point.
The Game Plan
Here’s your actionable game plan for SOFI:
- Add SOFI to your ChartList. This will help you keep a close eye on SOFI’s price action. Note the key levels of interest, including at $16.60 (current swing high), at $14.80 and $13.00 (stop loss levels), and at $25 and $28 (potential long-term profit targets).
- Plan your entry strategy. If you’re not already in the trade, wait for a breakout above the $16.60 swing high for a potential entry point. Alternatively, if the stock pulls back further, monitor for a lower swing high to adjust your strategy.
- Monitor momentum and volume. Use indicators like the Stochastic Oscillator or any other of your choosing to confirm the strength of the current price action. If price pulls back further, look for an oversold Stochastic reading (an ideal scenario) and/or a decisive volume spike to validate bullish momentum.
- Set your stops and targets. Tighten your risk management by setting stop-loss orders at $14.80 and $13.00. For potential upside, aim for $25 and $28 as long-term targets if the breakout sustains.
At the Close
The SCTR Report highlighted SOFI as a compelling opportunity, but its current price action requires careful monitoring. By adding SOFI to your ChartList and following the outlined setup, you can develop your own approach to SOFI that capitalizes on its potential upside while protecting yourself against the downside risks.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
