Sloppy Charts
None of Monday’s stocks with positive
news showed constructive chart patterns. All the more reason for the
intermediate-term trader to distrust the current market climate.
As an intermediate-term trader, I look
to buy stocks with 90+ one-year relative strength scores and, with a few
exceptions, superior earnings growth. I time my buys by waiting for these stocks
to complete constructive price-and-volume bases of at least five weeks in
length. I buy on the breakout if two market conditions are satisfied: (1) the
major indexes are following-through to the upside and (2) plenty of high RS
stocks are acting in similar fashion by completing healthy correction-recovery
patterns.
You can debate whether or not
Condition 1 has been met, but Condition 2 most decidedly has not. My weekly
review of high RS stocks continues to show a lack of near-complete bases. And
I’m seeing that same shortage reflected in stocks reporting positive news in the
present earnings season.
About
the best-looking chart among Monday’s news reporters was Dentsply International
(
XRAY |
Quote |
Chart |
News |
PowerRating) a maker of dental products and equipment. But the stock’s relative
price performance is unimpressive. As of Friday’s close, Dentsply had a 64
relative strength for the past 12 months on TradingMarkets’ StockScanner. Even if the stock enjoyed a
very high 12-month RS score, I’d pass for the time being. The scarcity of other
high RS stocks completing bases puts me on guard.
After
Monday’s close, the company reported earnings of 45 cents a share vs. 39 cents a
year ago and a penny above First Call/Thomson Financial’s consensus estimate.
To
its credit, Dentsply has recovered on active trade, a sign of institutional
accumulation. See green arrows in the above chart. The blue line passing through
the daily volume bars indicates the stock’s average daily volume over the past
50 sessions. The stock also reacted well Monday to a test of its prior session
gains, rebounding off Monday’s low to close near the high of the day’s trading
range.
RadioShack
(
RSH |
Quote |
Chart |
News |
PowerRating) reversed a
gap-down open to finish up 3 1/4 to 56 on nearly triple normal volume. Citing
robust sales of wireless phones and other digital products, the company reported
net income of 39 cents a share for the quarter vs. 29 cents a year ago and a
penny above estimates, according to First Call/Thomson Financial. In a
conference call, RadioShack backed the First Call/Thomson Financial’s consensus
estimate of 75 cents a share for the fourth quarter.
ll stocks, of course, are
speculative. On any new trade, be sure to limit your risk by limiting your
position size and setting a protective price stop where you will sell your 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,
check out the Money
Management area of TradingMarkets’ Stocks Education section.