Monday’s Intermediate-Term Report
While
raging bulls were seen stampeding from their home on the range since our last
report six sessions ago–cautious bulls have been able to steer clear
of the supposed smart money distribution bonanza that took place in both our
major indices. It wasn’t pretty folks, but viewing most of the carnage from the
sidelines–what I see now is the potential for some tremendous opportunity in
the coming weeks, for those with their horns still intact and their hides not
burned.
With our usually leading Nasdaq and
its lion’s share of growth stock names, it has been a very easy decision to
remain defensive, well ahead of this week’s major distribution statistics. From
our last report (and the one before that, and the one before that…), ‘…it is
the Nasdaq and the majority of growth stocks that we follow for solid clues
which for the most part remain entrenched, with few signs of real institutional
conviction. For cautious bulls everywhere, that’s enough evidence to keep us
patiently waiting and stalking our stocks from the sidelines–as hopefully the
next round of high-probability trades re-emerge in the not too distant future.With the majority of growth stock
issues deeply entrenched in their respective bases and a lagging Nasdaq
Composite showing yet again, two more sessions of distribution, the best thing
that we can do as growth stock investors is to do the proverbial sitting on
thumbs routine while we wait for more constructive price and volume behavior to
appear.’
The market ended up delivering more
of the same in spades, especially so in the lagging S&P500. Some folks may say,
‘lagging, are you nuts?’ But, here’s how I look at it; the Nasdaq which I look
at to lead the market in both directions has been telling technicians that the
recently strong over performance of the broader index was even more susceptible
to downside exposure, and not the other way around. On the week, while both
indices were down, the damage inflicted on the S&P500 was, on a price basis,
just a hair greater than the already whipped Nasdaq, as both traded down
approximately 3%, on a volume surge that spelled major distribution by anyone’s
standards. In the last fifteen sessions, the Nasdaq has actually put in at least
8, possibly 9 sessions of institutional quality distribution, while the broader
S&P has notched a minimum of 4 such days, and possibly 5 (sorry folks, with my
software its tough to get a perfect count).
Now for the good news. The same
folks that bought into the raging bull hoopla of January’s accumulation
statistics, with more conviction than anytime in recent memory that a sizable
rally was about to emerge, ten months into our bull run, are now licking some
serious wounds from their market-weighted portfolios. Meanwhile, the market
reality away from Main Street, and over on the corner of cautious bull and money
management, both our indices are still in corrective mode within the
context of a confirmed bull market. With the Nasdaq’s recent lows off 9.7% from
its highs set eight weeks ago, and the S&P showing a pullback just shy ofÂ
5% on hard selling into qualified technical lows–our goal is to remain vigilant
with our watch list of leading growth issues. A technical hold of the recent
lows allow us to monitor for conservative, quality entries into those issues
that have still managed to defy the market thus far. Each time the market shakes
out enough players and converting the majority of bulls into bears, opportunity
arises for those that have stayed ahead of the herd by listening to Mr. Market,
and not CNBC.
The most difficult part at this
stage, but not really, might be having to use more patience. To be honest, we
could be doing more of the proverbial sitting on thumbs routine for an
undetermined amount of time. With technical lows in place though, it’s the
vigilant eye, that, if opportunity does appear, will ultimately be the first to
seize the high-probability trade. While we have remained sidelined with most of
what is ours, still in our own pockets–the fact remains that now more than
anytime in the past two months, that our list of leading stocks shows even the
majority of these issues deeply entrenched in basing patterns. When the broader
markets correct, like that which we have just witnessed, growth issues that are
still qualified as technically sound, might in fact drop by as much as 35% from
their respective highs. If you held something like a growth stock as it ‘pulls
back’ by a percentage like 35%–well, to be honest–that’s no fun. Technically
speaking though, it does potentially put the issue in a fresh basing pattern
from which it might ultimately break out from, sometime down the road–and that
folks is how this cautious bull views the landscape for the time being. There
are still many leading issues out there that have held this benchmark, but from
my own scans of the cream of the crop, most look to need more base development
before a healthy breakout can occur. We also must look for the market to firm up
at a minimum, before getting aggressive with any fresh purchases. By firming up,
I mean that with the damage inflicted upon the Nasdaq already, we need to see
these pivot lows hold without more signs of distribution. On a move off of these
levels, a Follow-Thru-Day or FTD would also be strongly advised
before taking any classic triggers with the intention of using the typical 7% to
8% stop loss. My own philosophy on approaching trades at this juncture, before a
possible FTD, but with the current lows still confirmed–would be to take the
trade if the stock is demonstrating classic signs of a legitimate breakout, but
tighten up one’s protective stop and/or decrease position size…but that’s just
one cautious bull’s opinion.
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. When the breakouts stop
triggering consistently–it’s time to focus your energies on existing positions.
Bottom line–as technicians, we know where we like to make adjustments, either
adding to, or decreasing our portfolio, but it doesn’t mean that the decision is
the same for every trader. While the markets are sailing high, we realize that
between the peaks, troughs do exist, and it’s always in our best interest to
stay prepared for whatever comes our way. When the time comes that the indices
are ‘precariously’ testing levels of support once again, as they always do–many
of the stocks we watch, will actually be breaking out to fresh highs, or ready
to, from solid weekly basing patterns. All that we can do to take advantage of
the high-probability trade is continue to keep ready, and dare to prepare for
the next quality breakout within the market’s ongoing ‘confirmed rally.’
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.
| Company Name |
Symbol | 12 Month RS |
Price | Pivot +.10 |
Technical Perspective |
| Guitar Center | ( GTRC | Quote | Chart | News | PowerRating) |
53 | 34.37 | 37 – 37.20 | 3-month Cup and Handle All-Time-Highs |
| Safenet | ( SFNT | Quote | Chart | News | PowerRating) |
64 | 37.90 | 41.90 | 3-Month base w/ 5-week right side of base consolidation trigger |
| Skywest | ( SKYW | Quote | Chart | News | PowerRating) |
53 | 18.80 | 20.80 | 5-Month Cup w/ handle entry |
| Kensey Nash | ( KNSY | Quote | Chart | News | PowerRating) |
30 | 25 | 28.15 | 6-Month Cup w/ handle |
| Amdocs | ( DOX | Quote | Chart | News | PowerRating) |
63 | 26.65 | 29.84 | 6-week lateral base |
| Arthrocare | ( ARTC | Quote | Chart | News | PowerRating) |
78 | 26.40 | 27.58 – 27.67 | 8-Week basing pattern |
| Integra LifeSciences | ( IART | Quote | Chart | News | PowerRating) |
45 | 32.27 | 33.96 | 4-Month weekly Cup and Handle |
| Southwestern Energy | ( SWC | Quote | Chart | News | PowerRating) |
97 | 23.28 | 23.57 | 3.5-Month Cup w/ Handle entry |
| Celgene | ( CELG | Quote | Chart | News | PowerRating) |
47 | 44.40 | 45.31 | YTD Cup w/ handle entry |
| Hovnanian | ( HOV | Quote | Chart | News | PowerRating) |
77 | 88.50 | 92.70 | 4-Month Cup w/ handle entry |
| Natl Fin. Partners | ( NFP | Quote | Chart | News | PowerRating) |
50 | 31.77 | 34.09 | 8-Week lateral base |
| Bankrate Inc | ( RATE | Quote | Chart | News | PowerRating) |
92 | 18.04 | 19.20 or 19.95 | 6-month Cup and handle |
IT Watch List Action:
As always, the search goes on for top stocks meeting our fundamental and
technical criteria, but issues may still show ‘flaws.’ The most common ‘flaw’
being ROE, according to strict IBD-style investing . Always do your own
homework before entering a trade .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 |
| Marvell Technology | ( MRVL | Quote | Chart | News | PowerRating) |
69 | 41.83 | 4-Month high level lateral base | 2,512 | 46.73 |
| Dendrite | ( DRTE | Quote | Chart | News | PowerRating) |
50 | 15.78 | 4-Month high level lateral base | 229 | 17.85 |
| OmniVision | ( OVTI | Quote | Chart | News | PowerRating) |
77 | 27.30 | 3.5-Month base | 4,070 | 33.56 to 33.93 |
| Noble | ( NOBL | Quote | Chart | News | PowerRating) |
95 | 25 | 8-Week lateral base | 0 | 28 |
Stocks Forming A Handle
| Company Name |
Symbol | 12 Month RS |
Price | Technical condition |
Average Volume in 000’s |
Pivot |
| Silicon Labs | ( SLAB | Quote | Chart | News | PowerRating) |
80 | 54.62 | 4.5 Month Cup w/ High Handle entry | 1,603 | 60.02 |
Â
Recent Breakouts From “Base & Handle”
Lists
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. Due to
additional ‘fresh’ candidates making the grade–stocks on the breakout list will
be dropped after six months or a pullback of greater than 25% from highs.
Â
| Company Name |
Symbol | 12 Month RS |
Price | Average Volume-50 Day in 000’s |
Pivot | 52-Week High |
| Centex | ( CTX | Quote | Chart | News | PowerRating) |
82 | 112.76 | 1,548 | 59.80 & 79.52 |
116.80 |
| Countrywide Financial | ( CFC | Quote | Chart | News | PowerRating) |
83 | 93.37 | 2,666 | 59.16 | 97.30 |
| Whole Foods Market | ( WFMI | Quote | Chart | News | PowerRating) |
64 | 73.98 | 687 | 56.34 | 79.24 |
| Marvel Enterprises | ( MVL | Quote | Chart | News | PowerRating) |
74 | 29.98 | 889 | 26.05/30.16 | 35.73 |
| Sharper Image | ( SHRP | Quote | Chart | News | PowerRating) |
74 | 35.40 | 364 | 27.85 | 39.92 |
| Zebra Technologies | ( ZBRA | Quote | Chart | News | PowerRating) |
68 | 70.29 | 348 | 56.18 | 72.84 |
| St. Jude Medical | ( STJ | Quote | Chart | News | PowerRating) |
66 | 74.85 | 1,659 | 58.89 | 79.03 |
| Serologicals | ( SERO | Quote | Chart | News | PowerRating) |
82 | 20.67 | 489 | 19.07/19.39 | 21.17 |
| NII Holdings | ( NIHD | Quote | Chart | News | PowerRating) |
96 | 103.21 | 398 | 80.70 | 111 |
| Mobile Telesys | ( MBT | Quote | Chart | News | PowerRating) |
89 | 109.50 | 255 | 87.60 | 118.52 |
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 |
| Coach | ( COH | Quote | Chart | News | PowerRating) |
77 | 40.63 | 1,693 | 40.94 | 44.33 |