Waiting For Bases
Some of the battered leaders picked up
nicely Friday on strong volume, but the intermediate-term trader should remain
wary and in cash. Precious few high relative strength stocks are completing the
right sides of sound bases.Â
Impath
(
IMPH |
Quote |
Chart |
News |
PowerRating) jumped 6 1/2 to 53
1/2 on volume of 984,200 shares, twice its usual trade as averaged over the past
50 sessions. CIBC World Markets Friday initiated coverage with a “strong
buy” rating. Powerful institutional buying was already under way. Note the
Nov. 28 reversal off the trough, coinciding with a close in the upper half of
the session range and heavy volume (see Point A
in following chart).
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.
Impath shares have more work to do. To
reduce my concerns about overhead supply, the stock must overcome its 50-day
moving average and its mid level of around 60 a share. The mid level represents
the halfway point between the stock’s pre-correction high and subsequent trough.
I also would insist that the stock’s relative strength line move into new high
ground on or before any buyable breakout.
Again, though, I remain highly
suspicious of this bounce. Despite the sharp deterioration of the Nasdaq
Composite over the past four weeks, market psychology never reached the kind of
extreme pessimism that historically has prevailed during the formation of a
durable bottom. I’ll address this point in greater detail in new lesson on
options-based indicators of market psychology. That lesson will go live on the
TradingMarkets home page and on the Stocks/Indicators page on Saturday Dec. 2.
I also would direct you to Kevin
Marder’s incisive commentary
on Friday’s tape action. In addition to his careful track of distribution and
accumulation days on the Naz, Kevin also points out dubious intraday wedging
action on the index.
All stocks, of course, 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.