$BMCH and $GLDD are top swing trading setups with relative strength that are ready to zoom higher now. Continue reading to find out why!
Institutional funds have rotated out of software leadership and into the building sector over the past few months, led by a sharp rally in construction stocks.
Currently, construction stocks are too extended above their 50-day moving averages to produce the type of low-risk entry points we focus on for swing and position trading.
However, specific industries within the construction sector, such as building products and heavy construction, have begun showing relative strength to the S&P 500.
Below are annotated weekly charts showing two of the best swing trade setups in those bullish construction industries now.
BMC Stock Holdings ($BMCH)
BMC Stock Holdings ($BMCH) is part of the Construction Products industry group, which is ranked 16 out of 197 on Investors Business Daily.
While the major indices have been drifting sideways, the stock recently hammered out a new all-time high after several years of choppy price action.
This helped $BMCH to earn an IBD relative strength rating (RS) of 98, which is extremely strong.
A relative strength rating in the high nineties sometimes indicates a stock is a bit too extended for a proper entry point…but not this time.
Rather, the bullish chart below shows that BMC Stock Holdings just broke out from several months of consolidation last week:
Comparing recent price action of $BMCH with the S&P 500 Index (bottom section of the chart), notice how the stock surged to a record high while the broad market was still trading sideways.
Higher volume also confirmed last week’s bullish breakout from the basing pattern.
When a stock is so strong that it breaks out to a fresh high ahead of the main stock market indexes, what do you think will happen when the broad market eventually rallies as well?
Odds favor that BMC Stock Holdings will show market leadership by continuing to advance a greater percentage than the S&P 500.
This is the simple premise behind the amazingly powerful concept of relative strength trading.
We are now stalking $BMCH for potential pullback swing trade entry in The Wagner Daily report.
Great Lakes Dredge and Dock ($GLDD)
Great Lakes Dredge & Dock Corporation ($GLDD) set a fresh all-time high earlier this year by impressively breaking out of a 12-year trading range and above the $10 mark in April.
The heavy construction stock has been digesting the bullish move since then, chopping around in a tight range while allowing the 40-week moving average to catch up over the past several months:
Notice that $GLDD dipped to support of its 40-week moving average (similar to 200-day MA) in September.
That healthy pullback was followed by a month of tight price consolidation that led to a breakout above its 10-week moving average (similar to 50-day MA) last week.
The rally back above the 10-week MA also coincided with a move above a multi-month downtrend line from the July peak.
Last week’s breakout above that downtrend line triggered our official buy entry ($10.70) in the model portfolio of our nightly swing trading newsletter. Subscribers should note our exact stop and target prices on today’s report.
Great Lakes Dredge & Dock carries a top-notch RS rating of 95, along with two consecutive quarters of impressive earnings and sales growth.
Look for the price of $GLDD to continue trending higher and eventually break out to new highs over the next few weeks.
Which stock do you think is a better trade setup? Let us know your thoughts in the Comments below.