Stage Analysis
Understanding the 4 stages of a stock's lifecycle — a core concept in Minervini's SEPA methodology
The stock is moving sideways after a decline. Institutions are quietly accumulating shares while most investors have lost interest. Volume is typically low and the stock trades in a tight range near the 200-day moving average.
Characteristics
- •Price moves sideways in a range
- •200-day MA is flat or starting to turn up
- •50-day MA oscillates around the 200-day MA
- •Volume is generally low and declining
- •Moving averages converge
What to Look For
- →Tightening price range (volatility contraction)
- →200-day MA beginning to flatten after decline
- →Institutional accumulation on above-average volume days
- →Early signs of higher lows forming
The ideal buying stage. The stock breaks out of its base on strong volume and begins a sustained uptrend. Moving averages stack bullishly (50 > 150 > 200) and the stock consistently makes higher highs and higher lows. This is where the majority of a stock's gains occur.
Characteristics
- •Price above rising 50-day, 150-day, and 200-day MAs
- •Moving averages in bullish alignment: 50 > 150 > 200
- •All moving averages trending upward
- •Higher highs and higher lows pattern
- •Volume expansion on up-days, contraction on pullbacks
What to Look For
- →Breakouts from VCP (Volatility Contraction Patterns)
- →Strong RS rating (≥70, ideally ≥80)
- →Trend Template score of 7-8/8
- →Pullbacks to the 50-day MA on low volume
- →Earnings acceleration and revenue growth
The stock begins to lose upward momentum. Institutions are distributing (selling) their positions to retail buyers. Wide, volatile swings become common as the battle between buyers and sellers intensifies. The stock may still make new highs but fails to hold them.
Characteristics
- •Price volatile around 50-day MA
- •50-day MA starts to flatten or turn down
- •200-day MA may still be rising (lagging indicator)
- •High volume on down days (distribution)
- •Wide-ranging days with increased volatility
What to Look For
- →Failed breakout attempts (climax tops)
- →Loss of relative strength
- →Price repeatedly breaching the 50-day MA
- →Distribution days (high volume selling)
- →Earnings deceleration or misses
The stock is in a confirmed downtrend. All moving averages are falling and stacked bearishly. This is the worst stage to hold or buy a stock — the path of least resistance is down. Most investors who bought in Stage 3 are now underwater.
Characteristics
- •Price below falling 50-day, 150-day, and 200-day MAs
- •Moving averages in bearish alignment: 200 > 150 > 50
- •All moving averages trending downward
- •Lower highs and lower lows pattern
- •Volume spikes on sell-offs
What to Look For
- →Do NOT buy in this stage
- →Wait for Stage 1 basing pattern to form
- →Watch for eventual 200-day MA flattening
- →Volume dry-up may signal capitulation
- →Eventual re-entry only when Stage 2 criteria met
This tool is for educational and informational purposes only. It does not constitute financial advice. Always do your own research and consult a licensed financial adviser before making investment decisions.