Intermediate Term Report

  • August 29, 2003
  • Chris Tyler

 

Since we
last left off, our ‘confirmed uptrend’ has continued to impress. The
Nasdaq Composite, with the lion’s share of our growth stock friends has roared
higher to fresh relative highs, while the Dow Jones ‘Diamonds’ has shown some
glitter of its own by notching levels slightly above its three month
consolidation. Only the S&P 500, or the ‘Spyders’ could said to be crawling,
as it takes its time to further weave its lateral pattern, and remains range
bound. With the higher price levels in our index or ETF friends and two to three
days of accumulation versus one day of distribution, depending on your vehicle
of choice, its been a week in which the bulls put their best hoof forward as we
‘mooved’ to higher ground.

As stated last week, within a
healthy market environment, it’s still important to recognize where we are
within the broader trend. The past few sessions have been an excellent lesson,
or testament to this fact. Within an established uptrend that is conducive to
‘taking the breakout’, we still must realize the ebbs and flows of the
marketplace. When I wrote last week’s report I was personally looking for one of
those ‘ebbs’ to take place. Here’s an excerpt from that report: With the most
recent action from the past week, price is technically extended, especially if
one considers some of the leading sectors, like the semiconductors
(
SMH |
Quote |
Chart |
News |
PowerRating).
Coupled with sentiment readings such as the VIX, that are barely off of ‘the
floor’, and the prudent man says it might not be such a bad idea to wait for a
pullback. It doesn’t necessarily have to be big in percentage terms. As a matter
of fact, a pullback down to the 13 or 20 EMAs should provide the necessary
technical support to a market that is turning the corner to the upside. The
anticipation is for a pullback to happen on lighter trade, down to a Fibonacci
retracement from the August pivot lows, and/or significant EMAs. Although we
anticipate, ultimately it’s market action, comprised of price and volume, and
our own tolerance for risk within a disciplined trade methodology, that will be
our guide to know when the risk to initiate the trade is  truly acceptable.

With last Thursday’s and Friday’s
trade the indices all traded higher into extended territory. Going into this
move we had already been blessed with eight to ten sessions of higher prices,
and hence my hesitation for ‘taking the breakout’ over the very short-term. So,
what do you do when you’re faced with one of your stocks that’s triggering in
this type of scenario? As always, we must acknowledge our own tolerance for risk
within a disciplined trading methodology in order to keep our edge intact. For
some this might simply mean, not accepting breakouts at that particular time.
For others, like myself, we might decide to participate, but with tighter rules
in place when such situations arise. There are of course, strict advocates of
the ‘IBD’ school of investing in growth stocks that will adhere to those
well-defined rules as they have been proven to yield excellent long term
results. The point is, you have to know yourself, in order to act confidently
and profitably in the market if you are to succeed in the long run. Kronos
(
KRON |
Quote |
Chart |
News |
PowerRating),
from the ‘handles’ list below is a textbook case study of just that. I
personally took the trade. Some of the volume at the 60.50 high was my
own…unfortunately. But, within my own well-defined plan of attack, even though
a small loss was taken, the edge remained. For me, it was still a valid trade,
although within the confines of how I was perceiving the market at that
juncture, it was considered a higher risk trade. As such, I made an adjustment
in my risk parameters to an acceptable amount. End of story? Not really, just
one of the many countless trades defined by edge that will be taken consistently
for profits over the long run…and on that note, I’m still ready for Kronos
should it trigger again within a healthy market environment. As a sidenote, our
first breakout entry in Kronos in late June resulted in gains of over 9 points
or 18% before pulling back to the prior pivot area. If you do the math and more
importantly act consistently with your trading plan, your edge is still very
much working for you. In the end, with proper execution the net result should
yield positive results and keep you excited, as well as ready for that next
high-probability trade. Hmmm, a second entry in Kronos, based on the weekly
anyone?

Our technical levels of support have
moved up within our confirmed uptrend, to reflect the fresh buyside interest.
The August 6th & August 7th pivot lows in all of our ETF friends should
still be considered the definitive ‘line drawn in the sand’ for the bullish
case. In our acknowledged ‘healthy environment’ though, we ultimately anticipate
Institutional support for equities before a test of this magnitude happens, much
like we experienced during the prior trading week. With the most recent action
the 50-Day EMA will most likely result in Institutional buying, as long as the
volume characteristics that we have witnessed in the past three weeks continue
to ‘support that case.’

As we enter the last days of the
summer doldrums, maybe we can also say goodbye to our range bound friends and
look forward to more decisive upside action in our ETF friends. With the most
recent breakouts in growth stocks taking hold, volume characteristics confirming
the market’s bullish bias, and more stocks now setting up in classic patterns
with solid fundamentals to boot, we’re ready for the market to resume its course
as well, after a long summer vacation.

New Category:

Swing Trade Setups: Potential
position plays that are expected to last 2 to 7 trading days, using key
technical levels for entry. These stocks do not necessarily meet all of our
stringent Intermediate Term requirements, but are demonstrating many of the same
strong criteria. Due diligence on the individual traders part is an absolute
requirement!!! Proper money management rules are emphasized in scaling out of
profitable positions, as is, the setting of prudent stop losses, on the
establishment of any positions taken. The list is not maintained on a weekly
basis as trades are considered, at time of entry, short term in nature.

None Today.

Company
Name		 Symbol 12
Month RS		 Price Pivot
+.10		 Technical
Perspective
Integra
Lifesciences
(
IART |
Quote |
Chart |
News |
PowerRating)		 57 26.24 29.10
or 30.04		 1.5
year Cup and Handle
Talk
America
(
TALK |
Quote |
Chart |
News |
PowerRating)		 84 12.74  13.53 11
week handle consolidation
BEA
Systems
(
BEAS |
Quote |
Chart |
News |
PowerRating)		 82 13.38 13.88
– 14.08		 7-month
cup and handle
Scientific
Games
(
SGMS |
Quote |
Chart |
News |
PowerRating)		 57 9 10.07
– 10.31		 17-Month
Cup and Handle
Emulex
(
ELX |
Quote |
Chart |
News |
PowerRating)		 82 24.22 26.74 9-month
lateral trading range
Sina
(
SINA |
Quote |
Chart |
News |
PowerRating)		 99 31.15 Approx.
33.65		 6-week
Symmetrical triangle
Adobe
(
ADBE |
Quote |
Chart |
News |
PowerRating)		 74 38.89 39.29
or 40.10		 1.5
Month cup and handle

 

Watch List Action:

As always, the search goes on for top stocks meeting our fundamental and
technical criteria. Stocks forming bases or handles are monitored, and put on
our watchlist, and then moved to our position list of recent breakouts, on price
triggers above resistance pivots.

 

Stocks Building A Base

Company
Name		 Symbol 12
Month RS		 Price Technical
condition		 Average
Volume		 Pivot
Apollo
(
APOL |
Quote |
Chart |
News |
PowerRating)		 66 63.64 2.5
Month high level base		 2,000m 67.38

                       

Stocks Forming A Handle

Company
Name		 Symbol 12
Month RS		 Price Technical
condition		 Average
Volume		 Pivot
Kronos
(
KRON |
Quote |
Chart |
News |
PowerRating)		 82 57.96 18-month
Cup w7-week handle, second attempt		 150k 60.60
Fresh
DelMonte
(
FDP |
Quote |
Chart |
News |
PowerRating)		 54 27.42 10-Month
Cup and Handle		 407k 29.10
or 29.80

       

 

Recent Breakouts

We monitor the action of Recent Breakouts as an
indicator of the market health for IT traders. When breakouts are acting well,
this is a good sign for the likelihood of further sustainable breakouts. When
breakouts are failing, IT traders should be even more cautious. 

    

Company
Name		 Symbol 12
Month RS		 Price Average
Volume-65 Day		 Pivot 52-Week
High
Apollo
Group
(
APOL |
Quote |
Chart |
News |
PowerRating)		 66 63.64 2,000m 46.89 67.30
Career
Education 
(
CECO |
Quote |
Chart |
News |
PowerRating)		 86 45.45 1,750m 27.20 46.98
Coach
Inc.
(
COH |
Quote |
Chart |
News |
PowerRating)		 80 57.34 773k 28.35 58.17
Boston
Scientific
(
BSX |
Quote |
Chart |
News |
PowerRating)		 80 62.69 3,861m 47.65 67.18
International
Game Technology
(
IGT |
Quote |
Chart |
News |
PowerRating)		 63 25.37 2,785m 18.71 27.11
UCBH
Holdings
(
UCBH |
Quote |
Chart |
News |
PowerRating)		 71 31.75 330k 22.60 32.48
Corinthian
Colleges
(
COCO |
Quote |
Chart |
News |
PowerRating)		 71 56.85 775k 43.09 59.43
Nextel
(
NXTL |
Quote |
Chart |
News |
PowerRating)		 83 18.07 20,463m 15.85 20.53
Gtech
Holdings
(
GTK |
Quote |
Chart |
News |
PowerRating)		 78 41.64 649K 37.05
or 40.80		 41.90
Digital
Insight
(
DGIN |
Quote |
Chart |
News |
PowerRating)		 81 24 520k 22.38 24.50
Centex
(
CTX |
Quote |
Chart |
News |
PowerRating)		 53 76.80 1,639M 59.80 87.50
Endo
Pharmaceuticals
(
ENDP |
Quote |
Chart |
News |
PowerRating)		 73 16.85 1,025M 14.98 19.45

Breakouts that may
require extra diligence. Those issues that are near pivot entries or 15%
or more, from established highs.

This list accounts for those issues that have performed strongly, but may
require position management due to deteriorating technical condition before
pivot price is reached. If an issue pullbacks 30% or more from highs, the stock
will be removed from our lT lists, so we can make room for more compelling trade
candidates.

Company
Name		 Symbol 12
Month RS		 Price Average
Volume-65 Day		 Pivot 52-Week
High
             

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