Guidant Shaping Up
In times of anxiety over earnings,
medical group stocks often come alive. Medical device maker Guidant has been
basing nicely from a deep U-shaped correction and responded favorably Friday to
positive news.
Guidant
(
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PowerRating) said that it has
received approval from the U.S. Food and Drug Administration to market its
MULTI-LINK ULTRA coronary stent system for the treatment of coronary artery
disease. The company said the product is its first stent that is designed for
the treatment of larger coronary arteries with diameters from 3.5 to 5.0
millimeters.
The stock gained 1 to 65 11/16 on
active trade. As you can see, the stock has formed a handle above its 50- and
200-day moving averages as well as its mid level of around 60. That meets my
three prerequisites for overcoming overhead supply. The pivot point would be the
high of the handle at 67 9/16.
Overhead supply consists of the stock
in the hands of shareholders who bought at higher price levels. Once a stock
undergoes a correction, these weak holders want to end their unhappy experience
with the stock. So they tend to sell into rallies. Really strong stocks manage
to choose through this overhead supply on their way to higher ground. That’s why
I insist on recovery above the mid level — defined as half the maximum point
loss from pre-correction high to correction low — as well as the stock’s
intermediate- and long-term moving averages.
All stocks, of course, are
speculative. In any new trade, be sure to limit your risk by limiting your
position size and setting a protective price stop where you will sell your buy
or cover your short if the market turns against you.
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