This Week’s Intermediate-Term Report

• July 25, 2003
• Chris Tyler

 

It’s still a
‘confirmed rally’….barely. As
this is being written on Thursday evening, our ETF friends have shown
Institutional signs of distribution. This has been particularly evident in the
Spyder
(
SPY |
Quote |
Chart |
News |
PowerRating), our broadest market proxy of both the ‘old and new’ economies.
The overall ETF price action for the past week seems rather tame as the Diamonds
(
DIA |
Quote |
Chart |
News |
PowerRating) are up about 1%, while the Q’s
(
QQQ |
Quote |
Chart |
News |
PowerRating) and even the formentioned
Spyder are at the unchanged mark in percentage terms. But remember, as
technicians and advocates of growth stocks, we must also look at the price
performance of our leading issues, those stocks ‘in the making’, as well as that
other important technical gauge of market health, volume. It’s these factors
unfortunately, that present a potential problem as we head into Friday’s trade.

With 4 sessions of
distribution during the past 2.5 weeks in the Spyder, the market is showing
evidence of ‘real’ selling. We have to respect both price and volume. Although
price is what ultimately takes our trading accounts up and down, it is quite
often, volume that leads the price decision. This looks to be one of those
times. After 4.5 months of a steady run up from the March lows, the market
appears to be losing steam. Some cyclical heavyweights, such as Caterpillar
(
CAT |
Quote |
Chart |
News |
PowerRating)
and 3M
(
MMM |
Quote |
Chart |
News |
PowerRating) have managed to pull the Diamonds up to test relative highs,
but traction has been harder to come by in our other two proxies. More
importantly, since price hasn’t technically broken uptrend supports, the evident
distribution during the repeated attempts for the market to move higher is what
I refer to as a ‘heads up.’ Lastly, but very important to those of us who look
to growth stocks for leadership, is the developing breakdowns occurring in many
stocks that have led the market, up to this point. It must be said that some
names and sectors have pushed higher this week. High profile, large cap growth
stocks in both the Internet
(
HHH |
Quote |
Chart |
News |
PowerRating) and Biotech
(
BBH |
Quote |
Chart |
News |
PowerRating) sectors have been
the most resilient, but this is beginning to be more of the exception, rather
than the rule. Since I’m not one to preach, I’ll just leave you with a kind
reminder that when profits are on the table, make sure that you also have a
sound set of money management rules that you can sleep with, whether it be a
bull, bear, or something in-between.

What else is leading the prudent man
to carefully monitor the existing portfolio? Divergence. As stated, we are
seeing some recent leaders get ‘taken out’ this earnings season, while other
names gap and run to new highs in an almost violent manner. In my humble opinion
it feels like a chicken running around with it’s head cut off. There are fewer
stocks right now that are in the position to rally from strong weekly chart,
basing patterns. Mark Boucher’s Top
RS and ER List and Bottom
RS and ER lists are also interesting to note, because a lopsided ratio
favoring relative strength issues exists, but few of these seem to represent
stocks with solid consolidation work. Rather, most look to be extended at this
time. Furthermore, within our lists on this report we are also seeing action
that is more likely to produce a period of consolidation, or further base
building, before we proceed higher. This week, our names on the breakout list
produced only one fresh 52-Week High. Since I’ve personally managed the IT
Report for the past two months, this is the lowest figure to date. I have also
deleted two names from our list, New Century Financial
(
NCEN |
Quote |
Chart |
News |
PowerRating) and Digital
River
(
DRIV |
Quote |
Chart |
News |
PowerRating). New Century has been removed as it is now off more than 30%
from it’s 52-Week Highs. This is a wrinkle that I added to the report so that we
could discard those stocks no longer holding their own. Digital River was also
taken down from the report as the stock breached our pivot entry by 6%, after
initial gains of 30%. In an environment in which I am stressing some caution, I
feel this is another prudent decision. My intentions are to focus on fresh
faces, that are potential growth stock candidates as evidenced by strong
technical and fundamental pictures. Maybe stocks like NCEN and DRIV will
eventually make it back on our list, but for now, the percentage pullbacks
constitute removal from our ‘sites’, until a clear picture of a fresh basing
pattern develops.

The ‘swing’ list this past week has
resulted in less than prolific results, and also the very quick removal of quite
a few of our recent names. Thankfully, most of these occurred without triggers.
The three stocks that did trigger require a brief mention as each one was
distinct, and will hopefully provide fresh insight into our trading as we go
forward. C.H.Robinson
(
CHRW |
Quote |
Chart |
News |
PowerRating) triggered by .01 last Friday, but the late day
push to our entry price was more than suspect as volume was well-below average,
on a session wherein the stock staged a 180 degree reversal intraday to form a
hammer finish. Therefore, although price triggered, the trade in my opinion
should not have been taken. The next issue to trigger was Able Labs
(
ABRX |
Quote |
Chart |
News |
PowerRating).
This is a much more difficult call as the trade thru of our pivot price happened
in the opening minutes on strong relative volume. When trades trigger in the
opening minutes, I personally feel that the appropriate trade becomes subject to
intraday analysis, rather than just the daily, and weekly charts. Some traders
might use the 15-Minute High for instance, to try to assess momentum in the
stock. At times this will result in an entry further away from our pivot point,
but possibly a stronger entry overall. During other times, like that which we
witnessed in Able Labs, it will ultimately save the trader from potential
losses. In my opinion the trade was there to be taken, and unfortunately, the
intraday loss as well. Each trader must decide for themselves if the trade
exists at the time of price triggers. This can be open to debate, but the one
thing we can all agree upon is the need for money management once a position is
entered. The last trade to trigger from our swing list was Veritas
(
VRTS |
Quote |
Chart |
News |
PowerRating).
Veritas triggered out of a Taglia Gap entry in Thursday’s trade. The position
was good for nearly 5% intraday, or 1.30 pts. before succumbing to general
market weakness, and closing slightly below pivot entries. I think this trade
might also come in handy in determining how outside influences might come into
play as to how we decide to manage our trades in the future. Is there room for
negotiation, such as possibly exiting with Taglia rules rather than ‘swing
rules’,  when the market is less-than ideal (i.e. the environment that we
are currently in), or do we stand by the wayside altogether? Just more food for
thought, and hopefully food on the table when yet another day with potential
triggers presents itself.

I will rehash a bit from last week,
as the technical points are still very much relevant, especially given the extra
distribution since our last report. For many, the July 1st lows will be the
definitive ‘line drawn in the sand’ for the bullish case. Personally, with my
emphasis on taking profits as the market provides them to us, and through the
use of trailing stops, I tend to gravitate towards a bit of a more creative
approach. I emphasize a blend of trendline analysis, percentage pullback/fibonacci
retracements, as well as what the current environment is for our leading growth
stocks. In my humble analysis, I’m looking towards the May 20th/21st pivot lows
as the technical uptrend supports for both the Diamonds and Spyders. This is
roughly a 10% pullback for both these market proxies, and between the 38 to 50%
Fibonacci supports from the March lows. For the stronger Q’s, I’m looking
towards the July 1st lows as the technical case for the uptrend to remain
intact. This level also approximates a 10% pullback from its highs, and is
confirmed by the 38% Fibonacci support.

As we begin trade on Friday, the
emphasis is on ‘maintaining’. Who knows what tomorrow will ultimately bring. We
have some clues, and that has reduced our lists as we go forward one day at a
time. What happens after that, we also don’t know for sure, but the one thing
that we can count on is being prepared to trade those stocks demonstrating
superior growth and technical characteristics as they appear on our trading
screens once again.

 

Â	NYSE	NASDAQ
Advancing Issues	1384	1443
Declining Issues	1463	1594
Total Volume	1.84b	1.85b
New 52-week Highs	99	181
New 52-week Lows	15	9

 

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
Iron Mountain	( IRM | Quote | Chart | News | PowerRating)	51	38.90	40.29 or 40.74	Downsloping weekly consolidation pattern with two possible pivot entries
Lowes	( LOW | Quote | Chart | News | PowerRating)	43	47.11	48.15	2-month high level “W” with handle on daily
Able Labs	( ABRX | Quote | Chart | News | PowerRating)	94	23.33	23.99	second attempt at daily cup and 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	Pivot
Â	Â	Â	Â	Â	Â	Â

                       

Stocks Forming A Handle

Company Name	Symbol	12 Month RS	Price	Technical condition	Average Volume	Pivot
Â	Â	Â	Â	Â	Â	Â

       

 

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	Pivot	52-Week High
Apollo Group	( APOL | Quote | Chart | News | PowerRating)	70	64.05	2,299m	46.89	67.30
Career EducationÂ	( CECO | Quote | Chart | News | PowerRating)	85	84.62	984k	54.40	86.87
Coach Inc.	( COH | Quote | Chart | News | PowerRating)	84	53.11	924k	28.35	56.86
Boston Scientific	( BSX | Quote | Chart | News | PowerRating)	82	59	4,028m	47.65	65.73
International Game Technology	( IGT | Quote | Chart | News | PowerRating)	78	26.85	4,060m	18.71	27.11
UCBH Holdings	( UCBH | Quote | Chart | News | PowerRating)	69	30.67	395k	22.60	31.50
Corinthian Colleges	( COCO | Quote | Chart | News | PowerRating)	76	52.15	775k	43.09	52.83
Nextel	( NXTL | Quote | Chart | News | PowerRating)	89	18.71	22,151m	15.85	20.53

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 pullbacks 30% 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-65 Day	Pivot	52-Week High
 Gtech Holdings	( GTK | Quote | Chart | News | PowerRating)	73	38.10	640K	37.05	40.70
Garmin Ltd.	( GRMN | Quote | Chart | News | PowerRating)	79	42.96	843k	23.46	51.70
Endo Pharmaceutical	( ENDP | Quote | Chart | News | PowerRating)	77	15.91	1,025m	14.98	19.45
Hovnanian	( HOV | Quote | Chart | News | PowerRating)	78	51.81	1,105M	40.90	70.50
Centex	( CTX | Quote | Chart | News | PowerRating)	66	75.88	1,639m	59.80	87.50