Breakouts & Base Builders
In the grand scheme, how significant,
really, is a positive earnings report from an Internet giant, or a merger
announcement in the financial industry? In themselves, such events mean
little in strict economic terms. But in psychological terms, single news events
can matter a great deal.
Look at Thursday’s rallies following
Yahoo’s
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at a 47% premium. As big as Yahoo is, its success does not spell survival for
struggling dotcoms. As for UBS’s bid for the No. 4 U.S. brokerage is just the
latest in a series of M&A deals that have combined companies in the banking
and brokerage sector.
But sometimes the market is simply
ready to rally. All it needs is a bullish event to use as a starting gun for the
advance. The same occurs on the downside. The key is not to try to read to much
in the event itself. Instead, look at the market action. Are there a clear
bullish or bearish technical response to the news or not? In this case, there
is, and it’s decidedly positive.
There is no more bullish event than a
stock, group of stocks or index making a new high or new 52-week high for the
first time after a long correction. Lehman Brothers jumped 5 3/16 to a new high
of 111 5/8, breaking out of a 16-week base. The move came on double average
volume.
Merrill Lynch gained 2 9/16 to 131
9/16, the stock’s third straight new high.
If you’re trolling for stocks that are
still basing, JP Morgan
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never know when one will give you a pullback or high handle after breaking to
new high ground.
Yahoo’s glow put Wall Street in a mood
to reward positive surprises from other dotcoms. The No. 1 Web portal shot up 19
7/16 to 124 15/16 on triple average volume.
Arbia
(
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PowerRating), a leader in B2B
commerce, surged 12 3/8 to 103 1/2 on more than twice its usual trade. The
company reported a loss of five cents a share in its fiscal third quarter vs.
analyst estimates averaging eight cents, according to First Call/Thomson
Financial.
The stock, which is closing in on its
mid level of about 116 3/16, has been forming a nice, well-rounded
correction-recovery pattern. On the margins, you could call Thursday’s advance a
cup-with-handle breakout. However, many traders would call this premature given
that the stock has yet to take out its mid level.