Momentum check

With the US stock market still in one of its strongest short-term rallies in recent years, there’s been plenty of talk about how long such a move can last.

As always, it’s an unanswerable question. But a look at one stock’s recent run may provide some insights on how traders can make more educated decisions.

Dorian LPG (LPG) closed at a new high on Wednesday—a day after it accomplished the same feat, but also appeared on the LiveAction scan for unusual put options volume:

The chart also shows this week’s highs tested resistance at the stock’s former (record) highs from earlier this month. Over the past seven trading days LPG closed up every day and gained more than 20%, extending its 2023 return beyond 135%—and pushing the stock around 23% above its average Street price target of $34.80.¹

While some traders may have focused on the potential implications of LPG’s put volume as it tested a resistance level, others may have paid more attention to something a little more concrete—the nature of the stock’s recent upswing. If we look at comparable price moves—say, other times the stock hit its highest high in at least a month while gaining at least 15% in seven trading days—we find 50 results with the following characteristics:

1. the stock was lower five trading days (one week) later 68% of the time.
2. the average return was -2.1%.²

The three up arrows on the chart highlight the three most recent examples of this pattern, and the degree to which the stock did (or didn’t) pull back afterward. But that’s not the only way to define what the stock has done recently. What about the run of consecutive higher closes? If we analyze the other times the stock closed higher seven days in a row, we find far fewer examples—only 13 since the stock began trading in 2014. With the caveat that the results of such a small sample size have to be taken with a grain of salt, here’s what happened next:

1. the stock was lower five trading days (one week) later 77% of the time.
2. the average return was -1.6%.

While these numbers don’t mean the stock will do the same thing this time around, approaching a market scenario from multiple angles—that is, analyzing the different aspects of market activity that may be in play at a given time—can help traders get a better grip on the dynamics that may be at work.

Today’s numbers include (all times ET): Q3 GDP final (8:30 a.m.), weekly jobless claims (8:30 a.m.), Leading Economic Indicators (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Cintas (CTAS), CarMax (KMX), Nike (NKE).

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¹ TipRanks.com. Dorian LPG (LPG) Stock Forecast & Price Target. 12/20/23.
² All figures based on Dorian LPG (LPG) daily closing price data, 2014–2023. Supporting document available up request.