Looking for a “pop” is my definition of a stock making a big move higher. I can further categorize the pops into a big move for a day or two where the stock gaps and moves significantly higher. The other type of pop would be where the stock moves consistently higher over a period of time. Certainly, any stock has the potential for a pop when unexpectedly receiving good news. However, barring any unexpected news, there are some factors that we can look at that will increase the likelihood of a “pop.”
The main clue that we look for is a stock consolidating. Consolidating is referring to a stock becoming less volatile or becoming more stable, not moving up or down very much. Sometimes that is pretty easy to recognize. Other times, we may need some assistance from some indicators. The Bollinger Bands are primarily an indicator that helps identify potential explosive moves based on the bands contracting or pinching. The pinching of the bands is a frequent precursor to many pops.
Another indicator that is helpful is the Bollinger Band Width which rises or falls as the bands widen or pinch. Looking for historic low points on the Bollinger Band Width increases the chances of a pop.
Since we are looking for a bullish move, the other key ingredient is the stock finding a support level. Many times the support will be a moving average. The 20 moving average is typically the middle line of the Bollinger Bands indicator.
Patience is a key factor. When buying a call option, we need to have enough time for the stock to explode. If consolidating occurs and support is found, the stock may continue to consolidate. It is not uncommon for a stock to consolidate for weeks or a month before the “pop” occurs. The longer a stock consolidates, the greater the prospect of the big move.
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