Swimming Against The Tide
Impath surged Wednesday on news the
stock would be added to the S&P 600 SmallCap Index. In the process, the
stock advanced a good way in the formation of the right side of a
correction-recovery base.
The New York-based company
(
IMPH |
Quote |
Chart |
News |
PowerRating)
maintains a database of more than 550,000 patient profiles, which enables it to
provide diagnostic and prognostic information for cancer patients.Â
The stock jumped 7 1/8 to 56 7/8 on volume
of 1.8 million shares. It usually trades around 500,000. That kind of strong action in a weak market gets my attention. The stock still needs to
overcome its mid level of around 57 1/2.Â
The depth of this base — 59% from
peak to trough — is a concern. The greater the depth, the more failure prone a
base. However, this is a unique market. As of Wednesday’s intraday low, the
market is down 54.9% from peak to trough on the Nasdaq Composite. So I may allow
deeper-than-usual bases than otherwise would be the case. Of course, it all
depends on what I have to choose from on my watch list once the market turns.
In the case of Impath, I also would
want to the stock’s relative strength line move into new high ground on or
before the moment of any tradable breakout.
Another baser on my radar screen is
MGIC Investment
(
MTG |
Quote |
Chart |
News |
PowerRating). The Milwaukee-based provider of private mortgage
insurance coverage gained 3 11/16 to 66 3/4 on volume of 1.1 million shares,
nearly twice its usual trade. Note the strong RS line.
As for Tuesday’s sell-off on the Naz,
do I think this is the bottom? I have no idea. As an intermediate-term trader, I
am waiting for the market to provide evidence of a rally in the form of strong
follow-through action on the major indexes and a proliferation of high relative
strength stocks completing bases and breaking out on strong volume.
I would note that despite the
sharpness of Tuesday’s 7.1% decline, I still don’t see the negative sentiment
reaching the extremes that have characterized past market troughs. I like to
look at the volume of equity and index put options vs. that of call options on
the Chicago Board Options Exchange. The ratio reached .80 on Wednesday. In a solid bottom,
I’d like a CBOE put/call ratio in excess of 1.1. As I a few weeks ago in a
lesson on psychological
indicators, a lack of extreme fear characterized the Nov. 20 session
which many had hoped would form a bottom.
The top field of all stock charts in
this commentary uses a logarithmic price scale and displays a 50-day price
average in red. 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 speculative. 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,
check out the Money
Management area of TradingMarkets’ Stocks Education section.