Monday’s Intermediate-Term Report
What’s the saying
about the good things in life taking time? Well, if that’s true then the market
is well on its way after a week of consolidation type action.
For all intensive purposes, this week’s action can best be summed up as ‘lateral
in nature.’ For the five day period, the S&P500 was down a fractional .25%,
while the leading Nasdaq took in a bit more of the ol’ ‘digestion of gains’ as
it finished down slightly more than 2%. A fresh 52-week high was established in
the S&P index, but the Naz’, which we tend to concentrate on in viewing growth
stock leadership, was not even able to make the ‘shake-n-bake’ move up–as it
was ultimately contained in its two-week old trading range for the entire week
(where’d the Nasdaq 2000 party hats all go?). For the ‘confirmed rally’
though–the beat goes on.
Depending on how you count, and that
doesn’t mean Murray Math or anything fancy like that–the two major indices have
now spent the better part of the last ten to thirteen days contained in more or
less, lateral consolidations. During this ‘churn and burn’ period, the volume
statistics come in at very neutral levels, as the bulls and bears fight it out.
For the S&P cash, the past fifteen days has produced three days of institutional
support for the ‘confirmed rally’ and three sessions of ‘hated it’ style
distribution. For the leading Naz’–while price has been a bit more sluggish
during this period, accumulation actually comes in as the slight favorite as
four days of accumulation versus three sessions of distribution are obvious
within the ol’ price bars on the daily charts.
As you are aware though, its not
only the indices that matter to our trading accounts when it comes to the
decisions of when to buy, when to sell, and when to just ‘lay off’ the trigger
button. We ultimately must look at what the leading issues of the day are
doing–and ‘still’ in my humble opinion, it’s a good time to stay sharp and
ready, but remains an environment where it’s best to maintain what you have, and
keep the keg dry so to speak. It continues to be a market fraught with ‘flyers
and plungers.’ Those words are courtesy of Don Worden (TC2000) from about a week
ago, but looking at the charts as of Friday’s close, emphasize is placed on the
latter. As I personally have stated during the past two weeks, it ‘has
increasingly become much more difficult to find the high-probability trade when
it comes to growth stock breakouts. There were quite a few trades to be taken,
but most of these gains were for the nimble, and those that were played were
quite often done off the intraday charts–rather than the ideal daily or weekly
breakout triggers.’
I’m probably one of the few analyst
that is actually out there on the frontlines with traders on a daily basis (TMs
chat). I know firsthand which price triggers are working, and which are not. The
IT list for instance, if used (as I have cautioned as of late) has worked
well–but not in the traditional sense of just blindly taking the classic
trigger. When the market is consolidating (especially when we are at a high
level consolidation), it becomes in my humble opinion a 50-50 proposition for
playing the breakout–at best. If there is money to be made beyond the intraday
scope, one needs to find entries out of patterns that exist at lower levels
within the weekly basing patterns–otherwise you are putting your portfolio at a
distinct disadvantage by ‘going out’ with a negligible paper profit ’cause you
took the breakout.’ Continue to remember that within a ‘confirmed rally’, there
are still ebbs and flows that ultimately result in high probability times in
which to trade, and those that have the earmarks of less-than ‘common cents’ for
taking on new positions.
The broader indices consolidations
have been contained by the 20-day EMA–that’s the good news. Now for the bad
news within the ongoing ‘confirmed rally.’ The Naz’ actually closed below this
benchmark for the first time in over two trading weeks. Some of the HOLDRs, such
as the SMH are waving caution flags that are not visible in the distribution of
our two leading indices. This particular sector, the semiconductors, is also
‘still’ stretched precariously above its 50-Day EMA, while other recent leaders
such as the Internets (HHH), and Software (SWH) sectors sit at this technical
benchmark–and now, like the Phoenix rising from the ashes, the much hated
Pharmies (PPH) is Wall Street’s newest darling (personally speaking, the
reversal player in me says it’s about time). Hmmm, so what does it all mean???
Well, let me also throw in my two cents on the ongoing VIX saga and some
unconventional (unproven) market psychobabble about how ‘everything’, at least
according to today’s analysts, is looking better than ever–and I’m putting my
money on ‘tight and light’ for yet another week…maybe. Translation please–I’m
keying off the 50-Day EMA in the majors, including the semiconductors for buy
side decisions. I would actually like to see these levels penetrated and find
support at various Fibonacci levels of support off the October pivot lows before
looking aggressively within the (yes, even after this long winded spiel)
market’s ‘confirmed rally.’ This decision of course, will be predicated on
leading stocks maintaining their composure during a market pullback.
Within the lists maintained in this
report, the above analysis summed up the report’s less-than-perfect numbers
during the past week. Two issues from the due diligence list were effectively
removed (hats off the Aeropostale (ARO) and Flagstar Bancorp (FBC)).
As for triggers that were elected, both Gevity HR (GVHR) and a ‘second’ trigger
at the ‘classic level’ in Sharper Image (SHRP) are also confirming the notion of
money management and due diligence within our confirmed rally.
It is our own personal risk
tolerance levels within the market waves that ultimately dictate how well we
fare during both the great investing climates, as well as those that will be
considered less-than-perfect ‘sailing conditions. While the markets are sailing
high, we also realize that between the peaks, troughs do exist, and it’s always
in our best interest to stay prepared for whatever comes our way within the
‘confirmed rally.’ With the most recent voyage back to the crest of the wave,
I’m personally showing less provisions than at the most recent leg of our recent
journey up. For myself, that means that although there still might be a little
bit of good sailing, it’s probably time to concern oneself with battening down
the hatches with proper money management as we look to enter yet another ebb
within the market’s perfect storm.
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 |
| Alliance Data | ( ADS | Quote | Chart | News | PowerRating) |
57 | 28.21 | 29.84 | 18-Week lateral base |
| Hyperion Solutions | ( HYSL | Quote | Chart | News | PowerRating) |
36 | 32.89 | 35.10 | 5-month symmetrical triangle |
| Shuffle Master | ( SHFL | Quote | Chart | News | PowerRating) |
64 | 30.74 | 31.75 or 32.91 | 13-week cup and handle w/ handle and 52-week cup triggers |
| PDI Inc | ( PDII | Quote | Chart | News | PowerRating) |
90 | 25.97 | 26.32 or 28.95 | 3-month lateral base w/’handle pivot’ and 52-week b/o entries |
| Affymetrix | ( AFFX | Quote | Chart | News | PowerRating) |
17 | 24.54 | 26.66 | 2-Month cup and handle |
| KVH Industries | ( KVHI | Quote | Chart | News | PowerRating) |
91 | 30.10 | 32 or 32.80 | 2-month cup and handle |
| Standard Microsystems | ( SMSC | Quote | Chart | News | PowerRating) |
85 | 28.76 | 31.75 | 6-Week lateral consolidation |
| Gen-Probe | ( GPRO | Quote | Chart | News | PowerRating) |
82 | 29 | 31.17 | 8-Week cup w/ pivot handle entry |
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 in 000’s |
Pivot |
| Axcan Pharma | ( AXCA | Quote | Chart | News | PowerRating) |
40 | 14.16 | 5-Month high level base | 199 | 14.86 |
| Teva Pharmaceuticals | ( TEVA | Quote | Chart | News | PowerRating) |
53 | 57.37 | 4-Month lateral base | 2,088 | 61.66 |
| Aaipharma Inc | ( AAII | Quote | Chart | News | PowerRating) |
72 | 19.09 | 16-Week High level Consolidation | 530 | 20.15 |
*Axcan Pharmaceutical
ROE at 8% is lower than typical 15% to 17% threshold that many IT investors
accept.
Stocks Forming A Handle
| Company Name |
Symbol | 12 Month RS |
Price | Technical condition |
Average Volume in 000’s |
Pivot |
| San Juan Basin | ( SJT | Quote | Chart | News | PowerRating) |
47 | 18.85 | 4.5 Month cup and handle | 165 | 19.18 or 20.12 |
| UTI Worldwide | ( UTIW | Quote | Chart | News | PowerRating) |
61 | 36.03 | 2-Month cup and handle | 126 | 38.10 to 38.50 |
| Odyssey Healthcare | ( ODSY | Quote | Chart | News | PowerRating) |
80 | 31.71 | 2.5 Month cup and handle | 489 | 33.52 or 36.13 |
*UTI Worldwide ROE is 12%
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-50 Day in 000’s |
Pivot | 52-Week High |
| Apollo Group |
( APOL | Quote | Chart | News | PowerRating) |
55 | 66.54 | 1883 | 46.89
|
69.42 |
| Career Education |
( CECO | Quote | Chart | News | PowerRating) |
85 | 52.91 | 1400 | 27.20 | 56.20 |
| Coach Inc. |
( COH | Quote | Chart | News | PowerRating) |
86 | 37.70 | 1,641 | 14.18 | 38.73 |
| Boston Scientific |
( BSX | Quote | Chart | News | PowerRating) |
69 | 34.65 | 7,297 | 23.83 | 36.01 |
| International Game Technology |
( IGT | Quote | Chart | News | PowerRating) |
76 | 33.12 | 2,735 | 18.71 | 34.75 |
| UCBH Holdings |
( UCBH | Quote | Chart | News | PowerRating) |
72 | 36.73 | 250 | 22.60 | 37.62 |
| Corinthian Colleges |
( COCO | Quote | Chart | News | PowerRating) |
66 | 62.60 | 805 | 43.09 | 65 |
| Nextel | ( NXTL | Quote | Chart | News | PowerRating) |
79 | 23.62 | 17,208 | 15.85 | 24.60 |
| Gtech Holdings |
( GTK | Quote | Chart | News | PowerRating) |
75 | 47.94 | 597 | 37.05 or 40.80 |
49.09 |
| Centex | ( CTX | Quote | Chart | News | PowerRating) |
80 | 99.02 | 1,188 | 59.80 & 79.52 |
101.11 |
| Countrywide Financial | ( CFC | Quote | Chart | News | PowerRating) |
81 | 100.70 | 2,641 | 78..84 | 108 |
| Whole Foods Market | ( WFMI | Quote | Chart | News | PowerRating) |
49 | 63.70 | 710 | 56.34 | 65.40 |
| Marvel Enterprises | ( MVL | Quote | Chart | News | PowerRating) |
91 | 30.33 | 953 | 26.05 | 31.95 |
| Sharper Image | ( SHRP | Quote | Chart | News | PowerRating) |
75 | 31.49 | 327 | 27.85 | 32.70 |
| Garmin | ( GRMN | Quote | Chart | News | PowerRating) |
72 | 49.83 | 502 | 46.85 | 54.08 |
| Zebra Technologies | ( ZBRA | Quote | Chart | News | PowerRating) |
58 | 59.25 | 545 | 56.18 | 60.77 |
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 pull backs 36% 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-50 Day |
Pivot | 52-Week High |
| St.Jude Medical | ( STJ | Quote | Chart | News | PowerRating) |
49 | 57.50 | 1,694 | 58.89 | 63.60 |
| Constellation Brands | ( STZ | Quote | Chart | News | PowerRating) |
45 | 31.43 | 2,500 | 31.90 to 32.10 | 32.23 |
| Sharper Image | ( SHRP | Quote | Chart | News | PowerRating) |
75 | 31.49 | 327 | 31.25 | 32.70 |
| Gevity HR | ( GVHR | Quote | Chart | News | PowerRating) |
94 | 19.80 | 345 | 20.05 | 20.34 |
| Dollar General | ( DG | Quote | Chart | News | PowerRating) |
71 | 21.83 | 1,370 | 21.87 | 23.40 |
| Invitrogen | ( IVGN | Quote | Chart | News | PowerRating) |
83 | 63.50 | 943 | 63.15 | 66.18 |