Brad’s Note: Artificial intelligence continues to be the theme to follow in the markets. And while our focus is on the best dividend-paying companies in the world to profit from it… There are other, unique setups that you may want to get familiar with.
In today’s essay, our colleague Imre Gams shares a setup in one AI play that could be setting up to explode higher.
If you’re interested in short-term trading and have some funds set aside for more speculative bets, check it out below…
By Imre Gams, analyst, Market Minute
There’s no question that the biggest megatrend in the markets right now is all about artificial intelligence (AI)…
Right now, it seems like AI is everywhere.
Product announcements, earnings calls, conceptual designs… the market just expects companies to make use of AI one way or another.
The AI mania has forced the Securities and Exchange Commission (SEC) to focus on what it’s calling “AI washing.” That’s when a company inflates the role AI plays in its business operations.
But make no mistake…
The AI megatrend is the most exciting narrative to grip the market in a very long time.
But investing in AI is not as easy as some make it out to be. AI is a technologically complex theme.
And picking the sure winners while avoiding the losers can be tricky.
A Basket of Stocks
This is where an ETF can be very helpful. An ETF holds a basket of different stocks relating to the ETF’s mandate.
While there are several AI-based ETFs out there, one I have my eye on is ROBO.
ROBO is an ETF that tracks the Global Robotics and Automation Index. ROBO will benefit greatly as the adoption of AI makes its way through industries like manufacturing and healthcare.
But simply buying and holding ROBO for the long-term isn’t what I’m interested in.
That’s because ROBO’s returns have historically been a mixed bag.
Over the last five years, ROBO’s quarter end returns are 12.14%. But over a three-year period, the returns are actually -1.93%.
This means that short- and intermediate-term trades in ROBO provides a compelling setup instead of just hanging on for the long-term.
And right now, ROBO’s price chart is showing signs that it’s getting ready for a quick and explosive burst higher.
Since December 27, ROBO has been trading in a sideways range. This range has now clearly developed into a powerful chart pattern.
The Triangle
This pattern is a triangle. You use two trendlines to outline the contours of the pattern. These trendlines slope towards each other, eventually reaching a point.
As we get closer to where the two lines will meet, we should see a strong breakout.
Check out the pattern on the chart below:
As you can see, ROBO is currently brushing up against the upper blue trendline. At the same time, prices are very close to the apex of the triangle – where the two trendlines would meet.
This means the breakout should happen any day.
When it does, my expectation is that prices will run up fairly quickly to just around $60.
Just remember – it’s very important to be patient. The triangle pattern isn’t confirmed until prices break out of the upper trendline.
But if we do get the breakout, we should be able to capitalize on a nice opportunity.
Happy trading,
Imre Gams