Bring Out The Yardsticks

July 10, 2000
Greg Kuhn

The play was called. A
fine one at
that.

The quarterback rolled out to his left
(that all-pro right cornerback on the opposing team has been killing us the
entire game, knocking down passes), the pass was complete. But did our receiver
stretch enough for the first down? It’s close. We’ll have to call for a
measurement.

Despite its attempt to upset the applecart, the Nasdaq Composite held its ground Thursday with a strong close.
Moreover, Friday’s 1.5% rally on increased volume, albeit every so slightly, was
a follow-through session of sorts from the June 23 closing low — nine trading
days later. Although it doesn’t represent an official FTD, the official one is
still in place from June 2, it is a show of strength — something the Naz
needs to generate a head of steam on the upside.

And while the first set of leaders
took it on the chin last week, the baton was indeed passed onto the next set of
potential leaders.

But this is why we’re calling for a
measurement at this point — four of the nine stocks above failed to generate
surging volume on their breakout attempts. Healthy breakouts should generate a
minimum volume increase of at least 40% above average. Also, despite the healthy
bout of accumulation over the past two weeks, the Naz isn’t out of its trading range just yet.

And while some of these guys decide
whether or not they’re going to successfully breakout of their basing patterns,
more stocks are still setting up right behind.

Another one to watch is Hot Topic
(
HOTT |
Quote |
Chart |
News |
PowerRating).
The specialty retailer is one of the leading members of the O’Neil
Retail-Apparel/Shoe industry sub-group, which has moved up in the O’Neil RS
ranking system from 136 two weeks ago to 67 (out of 197 groups). Brauns Fashions
(
BFCI |
Quote |
Chart |
News |
PowerRating) broke out from a 10-week cup-with-handle pattern a month ago and is
the early leader in the group.

Hot Topic has had huge
year-over-year, quarterly earnings’ increases over the past five quarters, with
the latest quarter coming in at 229%. Revenue growth has also been healthy,
checking in at around 60% on a year-over-year, quarterly basis for the past five
quarters. Annual earnings have increased every year for the past six years, and
the company’s return-on-equity topped 23% last year — accelerating upward every
year for the past four years. The stock has an O’Neil EPS rank of 99 and an RS
rank of 89. It’s currently working on a 14-week cup formation, which is a base
on top of its prior base that formed from December through March.

One of the early leading industry
groups to this point has been the semiconductor manufacturers. Despite the
drubbing among some the high-flyers in this group last week, they appear to be
the exception at this point. The majority of the leading issues within this
group continue to act fine. For example, SDL Inc
(
SDLI |
Quote |
Chart |
News |
PowerRating), which had every
chance to fall apart recently, held tight and is attempting to emerge from a
three-week double-bottom pattern. Moreover, the mother of all semi’s, Intel Corp
(
INTC |
Quote |
Chart |
News |
PowerRating), moved up to the lip of its handle Friday, within a 15-week
cup-with-handle pattern. Despite last week’s confusion in this group over
upgrades and downgrades, it maintained second place (out of 197 O’Neil industry
sub-groups) last week in the O’Neil industry sub-group performance rankings.

It’s times like the past two weeks,
when it gets confusing, that make it very tempting to pick up the phone and ask
a fellow trader what he or she thinks of the market. Through experience, you
will learn to just sit back and let the market do what it’s going to do. If you’re
patient enough, the dust will eventually clear — it always has — and you’ll be
able to make sense of what’s going on.

But you have to know what you’re
doing. This takes practice. If you have a game plan going in, like Hall-of-Fame
football coach Tom Landry always had, you’ll never be far off track. Like every
successful football coach that’s ever coached in the NFL, you’ll develop a game
plan comprehensive enough for every situation.

Bring Out The Yardsticks

BUY THE FEAR, SELL THE GREED

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