Yeah, Baby!
It’s hard not to get excited about the recent market. The major
averages open weak and close strong. Volume is coming in heavier than the
previous day…what could possibly be wrong?
Now that I’ve probably marked the top of the rally with my comments,
let’s be more serious. The overall market has been acting well with higher
volume on rallies and lighter volume on pullbacks. Contrarian indicators such as
the Put/Call ratio and advisor sentiment are showing that investors are still
afraid to jump in with both feet. These are all great pieces of evidence that we
need to follow despite any opinions or gut feel that the market is overbought or
going to get hit anytime soon.
I am not saying to blindly go buy stocks, but I am saying that we need to
follow what the market is telling us. It is also important to properly evaluate
the market on a daily basis for any new or contrary evidence.
Individual stocks have been breaking out all over the place. The only thing
to be on the alert for is buying into anything and everything that breaks out of a
good-looking base. It’s important to stick with the rules or investors will
find themselves making money, only to give it right back.
Advanced Neuromodulation
(
ANSI |
Quote |
Chart |
News |
PowerRating) broke through its pivot of 35.55 today on
heavy trade. The base is a bit choppy, and the company is trying to get its
annual EPS growth back on track.
Penn National Gaming
(
PENN |
Quote |
Chart |
News |
PowerRating) has cranked through its pivot of 18.17. This
stock broke out of one of the lowest handles you would typically see in a base.
Similar to Krispy Kreme
(
KKD |
Quote |
Chart |
News |
PowerRating) in spring of 2001, it may form another handle closer to
the high of 20.88.
Moody’s
(
MCO |
Quote |
Chart |
News |
PowerRating)
is one of the few stocks to fall below the pivot as it trades
around 49.60 as I write this. I saw an upward-wedging handle on a weekly chart
as a potential problem, but its group continues to hang in there as a leader.
After so many names have broken through resistance over the past few weeks,
it’s a time to insist on following rules. Mostly anything that has set up has
worked, so now it becomes time to follow solid sell rules. When someone moves
into a trade, it’s important to know from the beginning whether or not you are
looking for a quick profit or a longer-term investment. Following that decision,
let proven sell rules take care of the rest for you.
At this point in the current rally, one that has seen the
S&P 500
(
$SPX |
Quote |
Chart |
News |
PowerRating) go from
a low of 775.96 to 963.50, or 24% in only five weeks, it is very important for us
not to let or opinion get in the way. If our rules have us sell a position and
it goes higher, move on. If we hold a position because our sell rules are not
triggered and the position declines, re-evaluate, have faith in your rounded
sell rules and continually monitor the position. If we’re really in a new Bull
Market, most of the time, this position will rally much higher in gratitude for
giving it room to consolidate. Secondly, watch for new setups with solid
technical and fundamental traits. Spend this weekend poring over charts in
search of the next great winner. Some of the best candidates are usually the
toughest ones to spot.
Take Isle of Capri Casinos
(
ISLE |
Quote |
Chart |
News |
PowerRating). This stock formed a double bottom that
could have easily been overlooked as one quickly glanced at hundreds of charts in
one sitting. Yet the stock continues to hang in there, above the pivot of 20.67.
Each day, spend time evaluating the overall market to make sure evidence is
still appearing that supports the current rally.
Have a productive weekend,
Â