How To Trade Stocks: Lessons From The 1957 Breakout of Thiokol Chemical

How To Trade Stocks: Lessons From The 1957 Breakout of Thiokol Chemical

From 1954 to 1957, aerospace was a leading sector with the military aircraft boom. The huge follow-on group in the next market cycle was the new missile sector.

[ibd-display-video id=2700154 width=50 float=left autostart=true] Thiokol Chemical was a leader with fuel and motors for the new rocket era.

Originally, Thiokol was created by accident. Attempting to make antifreeze, two chemists made a synthetic rubber that clogged their sink. They were unable to remove the clog with any solvents and realized that solvent resistance could be a useful property of the substance.

After World War II, the Jet Propulsion Laboratory discovered that the polymer made a very effective solid fuel for rockets. This concept was brought straight to the military. Thiokol continued to focus on military applications, designing and manufacturing rocket engines, especially for missiles.

Before Thiokol’s 53-week cup-with-handle chart base, it had already proved itself in the market by coming out of a 15-week cup with handle in December 1955 and doubling in just 15 weeks.

These bases were all built during corrections in the Dow Jones average and broke out around follow-through days in the market index.

Too many investors use their personal opinions rather than using rules for timing the general market and individual stocks.

The three quarters of earnings growth before the April 1957 breakout were 24%, 44% and 100% (all accelerating).

If you miss the first base, pay attention. Leaders can build a later base and opportunity.

The early December 1957 volume breakout was actually a first-stage base, since this was the very beginning of a new bull market. This is where the biggest profits are available (from $11 to $72 split-adjusted prices).

Be disciplined and scan charts every week so you don’t miss stocks that finally complete their base-building.

For the best prospects, do a price and volume check of each week within the stock’s base to help you conclude if the stock is showing sound accumulation or too many price and volume defects.

Next, do a fundamental analysis checking for excellent earnings, sales and return on equity.

Read an archived story on Investors.com so you understand the company, and make sure the market is in an uptrend.

Don’t be intimidated – you can learn how to take advantage of the many innovative new leaders in every new cycle.

( Editor’s Note: IBD founder William O’Neil wrote a regular column titled “How To Find & Own America’s Greatest Opportunities” to highlight some of the greatest winners in stock market history. This O’Neil column was published in the Dec. 26, 2012, edition of IBD. Please read and reread these columns and study the charts to solidify your knowledge and mastery of critical fundamental and technical traits that will inevitably be seen in future big winners. )

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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