Hey, Abbott!
As a momentum trader, I prefer to wait
for the market to show signs of rallying off a bottom or extending a nascent
rally before going long. That rules out the present market for intermediate-term
buys. For those of you who still want to trade long, some of the healthcare
stocks have shown relative strength.
Before Tuesday’s open, Abbott
Laboratories
(
ABT |
Quote |
Chart |
News |
PowerRating) Tuesday reported 3Q earnings of 42 cents a share, meeting
First Call/Thomson Financial’s consensus estimates. The North Chicago,
Ill.-based pharmaceutical company posted 3Q earnings of 38 cents a share. Abbott
Laboratories also said it expects to meet expectations of 48 cents a share in
the fourth quarter.
The stock jumped 1 3/8 to 49 1/16 on
twice its usual daily trade as averaged over the past 50 days, formed a bullish engulfing
pattern and set a new 52-week high.
Over the past few weeks in this
column, I’ve highlighted a number of high-volume, gap-down price moves which
occurred on negative news. These made good short candidates. True to form, a
number have bounced, then rolled over. Examples have included Eastman Kodak
(
EK |
Quote |
Chart |
News |
PowerRating),
which gapped down on Sept. 26, Priceline.com
(
PCLN |
Quote |
Chart |
News |
PowerRating) Sept. 27 and Apple
Computer
(
AAPL |
Quote |
Chart |
News |
PowerRating) Sept. 29.
In each case, the bear verdict was
clear. Not only did each stock gap down severely, the share price deteriorated
further throughout the session to close near the bottom of the day’s trading
range. No institutional bargain-hunters stepped up to the plate.
Xilinx
(
XLNX |
Quote |
Chart |
News |
PowerRating) and Altera
(
ALTR |
Quote |
Chart |
News |
PowerRating)
do not meet the profile for short
candidates. Shares in the two chipmakers Altera and Xilinx gapped down Tuesday
after two brokerage firms downgraded the stocks, raising fresh concerns that the
semiconductor market has peaked and is set to contract. But as you can see,
institutions moved in to push both stocks off their lows, particularly in the
case of Xilinx.Â
While these stocks could well head
lower, the probability of further price deterioration is less in cases
where a stock appears to come under accumulation near the day’s lows vs. stock that closes in the bottom of the day’s range.
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,
you’ll find a mother lode of lessons in the Money
Management area of TradingMarkets’ Stocks Education section.