Following The Leaders
Two straight
distribution days on the Nasdaq will probably not help our chances of
seeing the recent follow-through day amount to anything.
As if this was a surprise! Leading
stocks or leading groups have been non-existent for the past two months now.
Sure, there have been a few breakouts here and there, but for the most part, the
quantity of stocks breaking out has been lacking. Although this is not a criterion
I require in investing, it is an indicator that can be watched as to the chances
of a follow-through succeeding, or individual investments succeeding.
Nonetheless, recent breakouts Hotel
Reservation
(
ROOM |
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PowerRating) and Americredit
(
ACF |
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PowerRating) have managed to stay above
their pivot prices despite just about all others failing. ROOM has posted a 32%
gain from its breakout point despite the weak market, and ACF has posted a
less-than-stellar 9% gain since breaking past its buy point on volume.
If you were not in these, do not even
worry because they are only two stocks out of the thousands from which to pick.
The point in identifying these is to illustrate how potential investment
candidates usually act during choppy markets.
Meanwhile, stocks that had been
setting up in bases or waiting for the market to stabilize have been getting
knocked down, one by one. Another lesson exists here in why investors should not
be trying to “jump the gun,” and buy a stock before it hits the exact
point of least resistance, i.e., pivot point. U.S. Physical Therapy
(
USPH |
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PowerRating)
has been meandering through a base with very little conviction. FEI Company
(
FEIC |
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PowerRating)
seemed to be an indication of the true semiconductor strength, as it was unable
to break out of its 8-week base and is now sinking towards the bottom. Herein
lies another lesson as to what watching a leader can do in analyzing a sector’s
or a market’s true strength. The leader did not press higher, thus showing early
signs that the entire group may not be as strong as it appeared through its
rally last week. Diagnostic Products Corp.
(
DP |
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PowerRating) was setting up a possible
breakout until a bit of selling took hold and knocked it down a few points.
Respironics
(
RESP |
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PowerRating) and Resmed
(
RMD |
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PowerRating)
are two bases that look somewhat solid. Undoubtedly, in an attempt to move
higher, they will have to contend with a weak market, and RESP does show the
earnings growth one would require in a solid growth company.
In the meanwhile, it looks to be the
ol’ watch and wait, until the market starts shaping up and leading stocks become
more plentiful.
My next Trading Lesson is in the works
and will deal with properly evaluating a stock to be sold. I will try to address
many of the questions I have received on this topic, as it has been a popular
one in the recent market. Feel free to e-mail in any more questions/comments you
would like and I will try to incorporate them into the lesson or simply provide
responses.
Have a great weekend!