Handle With Care
There are a few high relative strength
stocks acting like they want to head higher from basing zones, but handle with
care! Around potential bottoms, wicked rotation can sap the supposed leaders at
the tail end of a bear!
If like
most medium-term traders you prefer to wait out the bear in cash while keeping
your powder dry, watching base builders is still good vigilance. When the rally in
high RS stocks comes, be it weeks or months from now, you’ll see sound bases
come out of the woodwork en masse, and they’ll behave well after the breakout
rather than failing.
Don’t read
too much into today’s strong showings in the major indexes. Give the market a
few days. Let it prove that it can progress from these levels with obvious
accumulation days on the big averages.
One
good sign: HCC Insurance Holdings
(
HCC |
Quote |
Chart |
News |
PowerRating), which wound up on my base-builder
radar on March
23, gapped out of a 13-week cup-with-handle pattern on strong volume. Late Wednesday, Standard & Poor’s announced HCC Insurance will replace Dallas Semiconductor
(
DS |
Quote |
Chart |
News |
PowerRating) in the S&P MidCap 400 Index after the close of trading on April 11.
Mortgage banker Doral Financial
(
DORL |
Quote |
Chart |
News |
PowerRating) is acting constructively.
Hot Topic
(
HOTT |
Quote |
Chart |
News |
PowerRating) also is showing upward momentum, although I’d like to
see the volume taper off along with a nice volatility contraction before
attempting a breakout. Notice the consistent support along the 50-day moving
average.
Student Loan
(
STU |
Quote |
Chart |
News |
PowerRating), which originates federally insured student loans
through a trust agreement with Citibank, is forming a sideways, flag-like
pattern atop a strong uptrend.
All stocks, of course, are risky. On
any new trade, be sure to limit your position size and set a protective price
stop where you will sell your buy or cover your short to protect yourself
against severe losses. For an introduction to combining price stops with
position sizing, see my lesson,
Risky Business.