De-Based
The news movers continue to flash
warning signals for the intermediate-term trader. On Tuesday, it was Techne
Corp., which sold off after reporting strong profit growth that met Wall Street
expectations.
Before the open, Techne
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reported reported earning 35 cents a share in the Sept. 30 first quarter, up 52%
gain from 23 cents a year ago. Net sales rose 13% to $27.7 million. That should
be a good fundamental combination. Rising sales and rising profits, with profit
growth outstripping sales growth. (You usually don’t want sales growth massively
outpacing profit growth. That could indicate a collapse in profit margins.)
In response, Techne fell 24 11/16 to
100 5/8 on four times its usual trade. The stock closed near the bottom of its
trading range, another bearish sign.
On Friday, Techne broke out of a
16-week cup-with-handle base on nearly double average volume. The stock tried to
follow through Monday but gave up most of the session’s gains to close near the
bottom of the day’s range. On Tuesday, shareholders dumped the stock in droves.
Since Techne never took out its
all-time high of 159 13/16 (set July 5), the stock could resume its
base-building effort. But Tuesday’s failure should stand as a warning to
intermediate-term traders who trade breakouts.Â
One stock does not stand as a proxy
for the entire market. However, remember the old saying, It’s a market of
stocks, not a stock market. Very few stocks with high 12-month relative strength
scores are setting up in near-complete bases at present. Here’s an example of
one of those few, which set, broke out on seemingly sound volume, then turned
tail on even greater volume.
National Semiconductor
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gapped down and fell 12 11/16 to 24 1/4 on five times normal volume. The plunged
came after the chipmaker warned that a slowdown in orders from mobile phone and
computer makers would depress fiscal second- and third-quarter sales. The stock
is now a candidate for a gap-down
short.
All stocks, of course, are risky. On
any new trade, be sure to reduce your risk by limiting your position size and
setting a protective stop where you will sell your buy or cover your short to
cap your losses in case the market turns against you.