Revenge Of The Killer V’s
Alza was one of the view strong news
movers Wednesday among the high earnings growth, high 12-month relative strength
crowd. Elsewhere, though, most of my screens for high RS stocks delivered stocks
in breakdowns rather than sound base formations.
Shares in the pharmaceutical company
(
AZA |
Quote |
Chart |
News |
PowerRating)
jumped 4 3/4 to 43 1/2 as volume rose to nearly 4.3 million shares, 58% above
the stock’s average daily activity over the past 50 sessions. The stock cleared
its 50-day moving average. The immediate trigger of the price move appeared to
be Robertson Stephens, which initiated coverage with a “buy”
recommendation. Given its sector, the stock’s longer-term strength could be
explained in part as a defensive play or Bush play.
I found far more charts that of would
be base builders that failed. Here’s another opportunity look for training your
eyeballs. The market has given us a overwhelming of how V-shaped
correction-recovery patterns are prone to failure. Look at the following charts
of Ciena
(
CIEN |
Quote |
Chart |
News |
PowerRating), Juniper Networks
(
JNPR |
Quote |
Chart |
News |
PowerRating), Power-One
(
ONE |
Quote |
Chart |
News |
PowerRating),
TranSwitch
(
TXCC |
Quote |
Chart |
News |
PowerRating), Newport
(
NEWP |
Quote |
Chart |
News |
PowerRating) and Micromuse
(
MUSE |
Quote |
Chart |
News |
PowerRating), all
stocks attempted to stage sharp recoveries, then rolled over.
In a correction-recovery pattern, you
want a rounded bottom or flat bottom that wears out the weak holders. Stocks
that try to vault back from deep recoveries often succumb as the weak holders
and bottom feeders come under irresistible temptation to sell into the rally.
Once a stock comes off its bottom, it’s helpful to do so with backing and
filling on the way up, sort of two-steps-forward-one-step-back action. That
allows the weak holders to exit on the way up without killing the rally.
The top field of all charts in this
commentary uses a logarithmic price scale and displays a 50-day price average in
red. In cases where the displayed has traded long enough, the top field also
will exhibit a 200-day moving price average in black. In the second field, a
blue relative strength line represents the displayed security’s price
performance relative to the S&P 500. The third field displays vertical daily
volume bars in black with a 50-day moving average in blue for volume.
All stocks 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 extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.
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