The Next Step
Last Friday, the market confirmed the
rally that began on Sept. 24. The S&P 500 posted a 2% gain on heavier volume
than the previous day. Now that this piece of the puzzle is in place, it is time
to move on to the next step.
The next step is to sort through
every stock that is publicly traded or whatever names investors come across and
carefully set aside the companies that are showing good fundamental and
technical traits.
My weekend research showed a few
names that required a second look, but still did not produce the quantity of
names usually associated with a full-fledged bull market. There is no doubt that
medical and defense stocks are attempting to provide the necessary leadership
for the market.
A few of the medical names I came
across included Biovail
(
BVF |
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PowerRating), Medamicus
(
MEDM |
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PowerRating), Cytyc
(
CYTC |
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Health
(
ACDO |
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PowerRating). Most of these names and a few others are showing good relative
strength, but are lacking the tight base formation I would usually like to see a
stock break out of. Fortunately, this does not stop us from waiting a couple of
days or weeks and monitoring the stocks for this consolidation to form. One week
of tight trade and low volume can sometimes be enough to put the finishing
touches on a base. ACDO is one example where if you draw in a downward sloping
handle, the base becomes very attractive!
L 3 Communications
(
LLL |
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PowerRating) blasted out
of a declining pattern after the American tragedy. It is now trying to tighten
up and consolidate the move it had. The longer it can spend churning in price at
this level with low volume, the better.
Another group I have seen producing a
few qualified candidates is in the finance/mortgage sector. Doral Financial
(
DORL |
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PowerRating)
is an example. The stock has solid earnings growth, cash flow to back it up, and
it is working on the handle of a short, seven-week cup.
If the current rally lasts, many more
opportunities will present themselves in the upcoming days, weeks and months. In
the meanwhile, it will be important to watch current breakouts succeed and new
ones form.
Until Thursday,