Time To Focus On Basics
Two things
about the current environment lead me to say that as
intermediate-term traders/investors, it is time for us to sit on the sidelines,
or very close to the sidelines. First, I counted five days of distribution on
the S&P 500
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PowerRating) over a ten-day period; and second, breakouts are failing on a
grand scale.
Krispy Kreme
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memorable failed breakouts when it moved through its first pivot on Oct. 23,
only to reverse the same day, not to mention that as of today it sits about 6%
below its pivot. Taro Pharmaceuticals
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unable to hold a successful move through resistance at 45.60 on Nov. 7. Over the
past couple of days, we have also seen Mobile Mini
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MTR Gaming
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take investors for a wild ride, as the stocks emerged from their bases.
We patiently watch and wait as
Penn National Gaming
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their breakouts.
Lastly, one of the big winners from
the spring rally began a breakout on very strong volume yesterday. The move was
attributed to a recommendation made by a firm we are all a bit familiar with:
William O’Neil & Co. The stock was TRC Companies
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PowerRating). Volume on the
move through its pivot of 52.60 was phenomenal at over 10 times average. Volume was heavy once again yesterday — we will have to wait and see if this stock can become one
of the very few success stories of the recent market.
For about every 10 stocks that have
broken out of a solid base over the past two months, one has succeeded. The
following three stocks are the ones I have kept an eye on as they have climbed
higher and higher following a successful breakout: PEC Solutions
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PowerRating) is
up about 30% from its pivot, Bradley Pharmaceuticals
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over a 50% gain from its breakout point, and Multimedia Games
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advanced over 70% past its buy point. As successful as these few stocks may
look, if it takes an investor 10 failures to achieve one success story, it is no
secret that an account is not going to do too well.
Right now, it is important to focus on
basics, such as the market itself. Keep an eye on the indices for signs of
accumulation or distribution. If accumulation is evident, it’s a good idea to
take a close look at the quantity of quality stocks setting up to break out of
sound bases. As they break out, ask yourself if they are succeeding in the day(s)
following the move. Eventually, the ratio will improve and things will fall into
place. The objective right now is to conserve capital so it is available when
there are profits to be made.
Until tomorrow,