A Good Thing
It is nice to see green after such
recent devastation! Yesterday’s action saw another nice confirmation to the
current rally.
Institutional buying or short
covering, whatever people are saying about it, it can be summed up as a good
thing. The problem lies within market leadership. As many people have been
pointing out, the stocks that are breaking out are doing so from cups without
handles, or sloppy bases. If this rally is going to succeed, more and more
stocks will set up and breakout from sound price patterns in the upcoming
weeks. Stocks that do break out of poor bases are more prone to failure,
something investors should not be bothering with. But I do have a simple
suggestion: If you are an investor looking to play, come to Vegas this weekend
where they serve free drinks to gamblers!
The best recent example of an
investor’s odds at playing these poor bases can be taken from Right Management
Consultants
(
RMCI |
Quote |
Chart |
News |
PowerRating) and AmSurg
(
AMSG |
Quote |
Chart |
News |
PowerRating). Both stocks have not formed a handle. RMCI
has successfully stayed above its pivot point of 29.59, while AMSG took a 15% hit
after breaking above the pivot point. That produces a 50% chance of success and
also represents a common theme in the market. It is much safer to wait for solid
setups to form and break out.
Although there are not that many buy
candidates, there are a few. L-3 Comm
(
LLL |
Quote |
Chart |
News |
PowerRating) formed a handle, while volume dried
up following a large gap and establishing the buy point of 92.10.
Biovail
(
BVF |
Quote |
Chart |
News |
PowerRating) formed a short, two-day
handle. The stock broke out on 10/2, but volume did not back the move, as it was
only 25% above average. Successful breakouts are accompanied by volume increases
in excess of 40-50% above the 50-day average volume.
Doral Financial
(
DORL |
Quote |
Chart |
News |
PowerRating) was another
recent breakout, but it reversed midday and closed down on the day and below its
pivot point of 39.41.
It just isn’t quite the time to go
after growth because there are very few good opportunities out there. One of
two things will happen in the upcoming week or two:Â
- Growth will become more
prevalent and provide more successful setups, or - The market will run into
trouble without leadership.Â
A “bounce” in beaten-down stocks can only take
the indices so high. Successful leadership is what will inevitably hold a
rally’s true conviction.
I am looking forward to meeting
everyone this weekend in Las Vegas. Get those questions ready and I will be
taking them as part of my presentation on Saturday.