Despite the O’Neil follow-through day
on the Nasdaq on Tuesday, very few stocks are setting up. The store’s open, but there’s nothing to buy. Let the market come to you. Let the high momentum stocks complete sound bases.
Wednesday’s news movers will show you
want I’m talking about. After Tuesday’s close, ResMed
earnings of 20 cents a share for the Sept. 30 first quarter, up 33% from 15
cents a year ago and a penny above First Call/Thomson Financial’s consensus
On a fundamental basis, ResMed has a
lot going for it. The fiscal Q1 profit growth of 33% represents an acceleration
over 27% year-over-year profit growth in the prior quarter. The San Diego,
Calif.-based company reported that quarterly net revenue grew 20% to $31.1
million. I like strong sales growth, but I also prefer profit growth that
outpaces sales growth on a percentage basis. ResMed fulfills that requirement.
ResMed also accomplished its sales growth despite a 20% decrease in the value of
the euro from which about 30% of revenues were derived.
Another plus: ResMed responded
positively to the news, gaining 3 11/16 to 29 3/16 on nearly triple average
But the stock still falls short on the
technicals: a mediocre 12-month relative strength score (58 as of Oct. 31) and
trading below its 50- and 200-day moving averages. Until the stock makes up at
least half of the loss from pre-correction high and post-correction low, and
clears the intermediate- and long-term moving averages, and earns a 12-month RS
score of 90 or higher, I’m not interested.
All stocks are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.