Base Builders
A few of the high RS
stocks appeared Wednesday to be forming in-progress bases. These are not
prospects that would show up if you were bottom-fishing in big-cap tech land.
The new leadership since April has come from other sectors.
Renaissance Learning
(
RLRN |
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PowerRating)
needs a little more time. The correction-recovery pattern is decent, but a tad
V-shaped and extended on the right side. Ideally, the stock would pull back on
light volume here before forcing your hand. Stocks that shoot straight out of
cups can work out, but be aware that this is a more failure-prone pattern than
the cup-with-handle.
First Horizon
Pharmaceutical
(
FHRX |
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PowerRating) is more volatile than I like, but this stock could
set up here if the RS line confirms any price breakout by moving into new high
ground.
Atlantic Coast Airlines
(
ACAI |
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PowerRating)
is an example of behavior that I like to see after a breakout. Note how the
stock is holding above the prior base and consolidating in a tight trading range
on low volume. This indicates weak holders and other potential sellers are
taking their time to clear out without damaging the price structure.
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.
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