Here They Come!

  • April 24, 2001
  • Loren Fleckenstein

Another string of top price-performing
stocks broke out of quality chart patterns Tuesday, an encouraging development
amid the pullbacks on the major indexes. 

This is how these base-building stocks
should behave. They should mark time or move higher in the face of normal
digestive action following the Nasdaq Composite’s nearly 34% run off the April 4 intraday low.

A growing number of quality
stocks are setting up and breaking out. Meanwhile, the Nasdaq has put in a string of
accumulation days (index gains on an increase in market volume over the
prior session). Institutions are buying. Last but not least, the Fed’s rate-cutting
campaign has restored the yield curve to a friendly upward slope. In our
upcoming workshops in Atlanta, Dallas and Phoenix, Gary Kaltbaum and I will
describe how we weave these and other factors together with the performance of
individual high RS stocks to judge when market conditions are most opportune for
intermediate-term momentum trading.

As I advised in my April 18
commentary, now is the time to step up your nightly research. The leading,
base-building stocks could start moving very quickly and in larger numbers.
Plug your very best stock picks into your real-time market monitoring software,
and stand ready to buy in order of breakout. Set price stops on every
trade. 

Pharmaceutical Development Products
(
PPD |
Quote |
Chart |
News |
PowerRating)
shot up 10.3% from a cup-with-handle chart pattern on nearly four times its
usual trade. Its relative strength line moved into new high ground. The company provides clinical research and development of pharmaceutical products and medical
devices, statistical analysis and analytical laboratory services. 

Fluor
(
FLR |
Quote |
Chart |
News |
PowerRating) charged through
resistance noted in our base-building radar on Monday 
and advanced 5.8% into new high ground along with its RS line on more than
double normal volume.

Loews
(
LTR |
Quote |
Chart |
News |
PowerRating), another bogey on my
radar Monday, rose 3.4% into new high ground on above-average volume.

The gaming industry continues to show
strength following International Game Technology’s
(
IGT |
Quote |
Chart |
News |
PowerRating) breakout on April
18. On Tuesday, it was Argosy Gaming’s
(
AGY |
Quote |
Chart |
News |
PowerRating) turn to emerge into new high
ground while Harrah’s
(
HET |
Quote |
Chart |
News |
PowerRating) followed through to the upside. Other breakouts:
Scios
(
SCIO |
Quote |
Chart |
News |
PowerRating) and Pulte
(
PHM |
Quote |
Chart |
News |
PowerRating). 

Among the base-builders that have my
eye, Charlotte Russe
(
CHIC |
Quote |
Chart |
News |
PowerRating) has set back up after a shakeout on April 6 and
9.

On the downside, Nvidia
(
NVDA |
Quote |
Chart |
News |
PowerRating)
had a bearish engulfing day on increased volume over the prior session. However,
it hasn’t violated its breakout.

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.