Play It Close To The Belt
First we
start seeing stocks that had recently broken out fail, then stocks
setting up to break out begin to dry up, and finally distribution days pop up
all over the place. Yet how could things be so bad with the market up as I write
this and all the good news, i.e., improved homes starts revised upward, building
permits numbers up, Oracle
(
ORCL |
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Chart |
News |
PowerRating) beating revised estimates, analyst
upgrades everywhere, etc.? Watch and listen to the market and the rest will
follow.
Be careful, because the market has
spoken! We have seen distribution days posted — which means the big guys are
looking to get out. It takes time for them to sell stock, and that will make it
difficult to establish any momentum on the upside. The first step would be to
look for that to end. Keep an eye out for a rally on good volume (as compared to
the previous day) and a confirmation of that initial rally.
Additionally, it will be important to
look for quality stocks setting up to break out. The medical sector has been
pushing a few names out in the open, but many of these have lacked the quality I
refer to. Alza
(
AZA |
Quote |
Chart |
News |
PowerRating) has wedged higher from a “V”-shaped base.
Elan
(
ELN |
Quote |
Chart |
News |
PowerRating) has successfully broken
out, but volume has been drying up on the move upward. Express Scripts
(
ESRX |
Quote |
Chart |
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PowerRating)
has been unable to mount a substantial rally. It has been drifting higher on
fairly light trade, which usually leads to a hit at some point, as sellers will
eventually head for the exit. King Pharmaceuticals
(
KG |
Quote |
Chart |
News |
PowerRating) is attempting to break
out of a 25-week base with a high handle.
Laboratory Corporation of America
(
LH |
Quote |
Chart |
News |
PowerRating)
is working through a fairly tight base of 25 weeks. Sicor
(
SCRI |
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Chart |
News |
PowerRating) is forming
a high handle on a 27-week base.
Outside of the medical sector, we see
Advent Software
(
ADVS |
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Chart |
News |
PowerRating) forming a loose base. Hotel Reservation Network
(
ROOM |
Quote |
Chart |
News |
PowerRating)
is still working on a handle. Other than these, great companies with strong
technicals have been fairly scarce. Coupled with overall distribution, this
means something: Play it close to the belt, or don’t play it at all!
I appreciate all your comments. This column is written for both of us and it helps
to find out what
you want to hear about, as well as putting my thoughts about the current
environment down on paper.
Until Thursday,
Â