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TheStreet Open House

5 Bottoming Stocks Starting to Signal a Buy

Garmin

Garmin (GRMN) is another name that's been under sellers' thumb for the last year and change -- but it's been moving lower for all the wrong reasons. This GPS technology name boasts no debt and $2.7 billion in cash and investments -- enough cash to cover more than a third of the firm's share price right now. Even though sellers have been in control of shares for a while now, the technicals make it clear when it's time to be a buyer.

Garmin spent the better part of the last year forming a double bottom, a price pattern that's formed by two swing lows that bottom out at approximately the same price level. The two bottoms are separated by a peak that marks that resistance level for the setup. A breakout above that price -- right at $43 for GRMN -- is the buy signal for shares. More recently, Garmin's resistance level has proved stronger than expected, pushing shares lower for a second time. That could change the pattern in play from a textbook "double bottom," but ultimately, the trading implications remain the same.

Whenever you're looking at a technical price pattern like this one, it's critical to think in terms of buyers and sellers. The "double bottom" identifier is a good quick way to explain what's going on in this stock, but it's not the reason it's tradable. Instead, it all comes down to supply and demand for shares. Resistance at $43 is a price where there's an excess of supply of shares; in other words, it's a place where sellers have been more eager to take gains and sell their shares than buyers have been to buy.

That's what makes the breakout above $43 so significant. It indicates that buyers are finally strong enough to absorb all of the excess supply above that price level. When that happens, it makes sense to be on the side of buyers.

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