Overall Positive Action

  • December 3, 2002
  • Tim Truebenbach

The market has been pulling back,
but volume is coming in lighter. So
far we are still seeing very positive action in the overall market.


 


 

The troubling action has come from growth stocks. 
Names like PEC Solutions
(
PECS |
Quote |
Chart |
News |
PowerRating)
move through their pivot points on heavy trade and look good for a day or two
before turning tail. The stock is now
trading 14% below its pivot as it heads for support at its 50-day moving
average.


 

This is a time when hard work, confidence and rules have
to be exercised. By continually forcing
each position to prove itself and kicking it out when it does not, our
portfolios will keep losses in check and even possibly add to our balances
with small profits. If this market
continues to show us solid strength, stocks are going to continue to set up
and break out. 

At this point, there has always been a major flaw in any
breakout that I have seen work out and move higher.
These flaws have kept most investors out of these quality stocks. 
Forest Labs
(
FRX |
Quote |
Chart |
News |
PowerRating) is the
market’s sole leader coming from one of the original groups that led the
averages of the bottom: Medical-ethical drugs.
The only problem was that the stock made the move out of its base on
10/1, and the market was under heavy distribution. 
Playing a breakout against these odds will cost more money than it’s
worth in the long run. 

Patience is very important right now as we build our
watch lists. Keep track of both stocks
that are setting up, but also ones that have already broken out.
As this market hangs in there and corrects in a healthy fashion, some
of these stocks may offer a second point at which to enter them.

We have also seen a rotation among leading sectors.
We have gone from strength in medicals, to strength in technology and
internets and we have just seeing a nice buying spree in telecommunications.

Keep an eye out for a group that advances and then
digests its gains without pulling back much. This
is the action of a true leading group and from it will come good stocks to
move into. Look for charts of stocks
that don’t give much ground before advancing 20% or more.

As tricky as this environment seems, patience and hard
work will pay off in the long run. Stick
to proven rules and apply them with unwavering discipline.
No one said making money in past big winners was ever easy.
Most of us do not move right into largely profitable stocks without
trading a few that yield smaller gains or don’t work out at first.

Until Thursday,

Tim

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