Curing Leadership
I could find no satisfactory bases
among Tuesday’s news movers. That alone tells you the current market remains
inclement for the intermediate-term trader. But we still can use continuing
price action to evaluate news of a few days ago.
CuraGen
(
CRGN |
Quote |
Chart |
News |
PowerRating) continues to
follow through to upside on strong volume since beating Q3 estimates after last
Friday’s close. The genomics-based drug discovery company reported a loss of 18
cents a share vs. estimates of 20 cents.
Shares have followed through to the
upside on heavy volume, including a move of 71/2 to 64 5/8 on Tuesday. Until we
see a proliferation of high RS stocks form near-complete bases, I would not
commit my intermediate-term account to anything other than the small, isolated test
position. I’d use this time to develop my own list of
leading stocks.
Could CuraGen fit the bill? Perhaps.
It depends on how the stock looks once the market confirms a tradable rally with
volume coming into a rallying Nasdaq Composite index and a proliferation of high
RS, high earnings growth stocks completing sound bases. So far, the stock looks
pretty strong. As of Monday’s close, CuraGen had 12-, six- and three-month RS
scores in the high 90s.
The stock still needs to clear its mid
level, which is a tad above 74 1/2. On the plus side, shares have cleared their
50- and 200-day moving averages. For long trades, I insist that recently
corrected stocks overcome their mid levels and their 50- and 200-day moving
averages. Stocks that correct, the recover above those benchmarks have managed
to chew through a great deal of overhead supply. Overhead supply is the amount of shares in
the hands of shareholders with paper losses. These weak
holders tend to look for exits and sell into rallies, blunting
further share-price progress. You can find a stock’s mid level by
summing the pre-correction high and the post-correction low, then dividing the
result by 2.
All stocks, of course, 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. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.