IL regains its footing; SOHU breaks out; PPO near break out

As the markets edge higher, stocks have shown some more life again. However, this is not the go-go market of years past. We have discussed this in our IBD Meetup Group, and most of us agree it is a challenging market to find solid winners in.

Sticking with the CANSLIM approach and favoring companies with top notch earnings and a new product with secular growth is the best way to find good winners even in this more challenging environment. Not every good company's stock is moving higher. Just when you think you've got one, it seems, a pullback snuffs the gains right away.

Stocks to consider: IL, SOHU, PPO

IL broke out, and immediately retreated, but it didn't go down 8%, which I often use as my stop loss. I view it as a quintessential CANSLIM, Bill O'Neil style stock. It's young, has a new product in a very new space, and sports top notch earnings. It lacks a little in ROE (12%) which is about the only flaw I find in it. Today it popped back up above its buy point after spending four days below it.

SOHU hesitated on its initial break out of a cup, then formed a three week's tight pattern which it recently broke out of. It is still in buy range.

PPO is setting up in a tight cup with handle. It's a little harder to get as excited about this one as its recent sales and EPS growth is on the weak side, but it looks to rebound in the next quarter. It's in a hot group and certainly looks like it wants to go higher. As always, wait for a break out on volume to consider getting in.

Two More Stocks Close To Breaking Out

The market’s pop caused at least a few breakouts today (yesterday by the time of this writing) and as we get ready for Thursday’s action, keep an eye on Netflix, NFLX, and Acme Packet, APKT.


Both stocks have stellar fundamentals and have unique products showing secular growth. Perhaps the most negative aspect of these stocks is that they have had long runs.

Nonetheless, funds have been aggressively buying shares of these stocks and the stocks’ strong technical action suggests their uptrends could continue, if even for just a little longer.

Below are daily charts of these stocks. The arrows indicate their pivot points. Both stocks are cup with handle patterns.

Silver On Its Way to $50

Silver is in a major uptrend that appears headed for $50. It has been difficult buying silver as it hardly pulls back on its way higher. This is truly exceptional behavior for a commodity such as this.


As we witness history in the making, how do you trade it at this point? If you missed any of the previous breakouts, silver hasn’t offered much of a pullback at all.

If you are an aggressive trader, if you get a slight pullback, it’s worth attempting a purchase with a stop in place two bars back. If you are wrong, take the loss and view it as an opportunity to establish a position at a lower price before silver regroups and heads higher.

If you are more cautious, perhaps this runaway train isn’t for you. You could wait for at least sideways action as it exhibited not long ago, but this may not happen. What seems more likely at this point is that silver shoots to $50 and maybe even higher before we start experiencing some serious gyrations, as always happens with assets and securities in hyperbolic action.

Whatever you do, treat this as a trade and don’t get married to your position. Just try to make some money on the way up.

Below is a daily chart of the SLV, a highly liquid ETF that tracks the price of silver. I've included a Keltner Channel with my own flavor. As you can see, silver is trading well above the bands, indicating exceptional strength. The green arrow is the most recent clean breakout which happened just after I posted an alert for silver in February.

Which Way, Market? Break Outs Suggest Up, Perhaps...

My previous post asked if the market rally was over. It appears suspicions of its death were somewhat exaggerated. While IBD listed it as “under pressure”, today’s action was heartening as the major indexes pushed up against recent highs, on higher volume than the day previous, with the DOW hitting a new 52 week high.


Just when you think the market is going to fail, it surprises us all with another bounce higher. While it is frustrating, it is refreshing on some level – that even the experts cannot predict exactly what will happen. If we all knew what would happen, we probably wouldn’t make any money. A strange paradox indeed.

At any rate, I previously posted a watch list of stocks setting up in bases, and for the most part, the list is still valid. The only stock on that list which is seeing a meltdown in its consolidation pattern is ACOM, which is too bad because it showed tremendous potential.

Stocks that broke out today and are still in buy range include IL, RAX, RHT, ALTR and CPX. RAX and ALTR broke out on increased volume, but it didn’t push above the 40% volume spike you’d like to see (IBD once used to say 50% was the amount you wanted; lower volume levels generally were ok for bigger stocks…use your discretion). DECK previously broke out and is still in buy range.

IL, RAX and RHT all benefit from cloud computing and all seemed to break out on the earnings report of IBM, among others, which made mention of the growing market. This is the kind of secular growth you want to see in a prospective stock purchase. New products, especially from a young company, coupled with tremendous earnings growth spell appreciating stock prices.

This market is still questionable, so use caution proceeding.

The daily stock charts of IL, RHT and CPX are below. Each of these broke out today past their pivot points on volume that was over 50% above average. In IL's case, it was 318% above average. This is the kind of volume spike often seen with new, young companies that are gaining the attention of bigger investors, a most positive sign.
 

Is This Market Rally Over?

As I sit here watching the market action at 10:30 in the morning, I’m looking for any sign that the market may show some life – any attempt to cut today’s terrible losses and at least try to finish in the upper half of the day’s range.


So far, the market juts looks plain awful. Looking at the chart, does this spell the end for the current uptrend?

The catalyst this time is a serious one: a downgrade in the outlook of US government debt by S&P.

The bond rating for US government debt is AAA, but S&P lowered its outlook to negative which raises the chances for an actual downgrade of the US’s sterling AAA credit rating. This could wreak all sorts of havoc if that occurred.

It is no wonder gold is up today. However, with silver showing hesitancy after a very strong advance, maybe gold and silver will also take a breather.

As far as breakout stocks go, I’m laying off any new purchases for the moment. In fact, I dumped my last two stocks Friday, RAX and DE. DE I lost money on, RAX I made a small profit in. This market showed initial success and money making opportunities with a few notable breakouts in such names as OPEN, BIDU, TZOO, LULU, RAX and others. Now, however, this market looks awful again.

All corrections lead to base building, which is a good thing. It’s best to keep an eye on top quality stocks and wait for a new uptrend in the future.

More Stocks Potentially Readying For a Breakout

Here are some stocks that are consolidating but have not broken out yet. Each one

Is getting very close to their respective buy pivot points, or path of least resistance as Jesse Livermore referred to break out levels.

ACOM (potential cup with handle)
APKT (cup)
ARMH (cup)
ASML (square box)
CMI (cup, potentially cup with handle)
CPX (cup with handle)
CXO (flat base)
DECK (cup)
DOV (cup, potentially cup with handle)
ILMN (cup, potentially cup with handle)
NFLX (late stage cup)
POT (double bottom or cup)
VSEA (slight V shaped cup base)

Each of the stocks above meets a strict search criteria that conforms with most of the elements of IBD’s CANSLIM. Not all the stocks listed above are in the top industry groups, which is something to consider, but not a deal breaker. Also, some stocks don’t have the 17% ROE, but each stock has top not fundamentals and has at least 25% EPS growth in the most recent quarter.

CMI, CPX, CXO, DOV & DECK have sales growth in the most recent quarter that is between 20 and 25% instead of the over 25% I’d prefer, but most of these are projected to have this quality next quarter. DECK, unfortunately, is projected to have negative EPS growth next quarter. I usually shine a stock if this is the case, especially when you have other high growth stocks to select from.

I’ve put charts below of those I think look the most agreeable. They are daily charts and the green arrow shows the pivot point. Note that sometimes the arrow is not at the origin of the handle. When a day’s action in the handle moves above the original pivot (previous high of the handle) but eases back down on low volume, that day’s high becomes the new buy point, but the length of the handle does not change. Five days or longer is the proper time for a handle to form, so keep an eye on the stocks as they continue to develop.

 

 

Gold Breaks Out

Pardon noting this a day late. Gold broke out of its consolidation Tuesday and followed that move up today with a small gain. Previously, gold attempted new highs, only to pull back and continue consolidating.
Tuesday’s move higher was a clear cut break out. Gold finished at the top of its range in a big, convincing mover to fresh highs. It looks to me like it wants to get moving. How high can it go is anyone’s guess, but $1,500 looks reasonable. For quite a while now, long before this break out, many analysts have suggested it will go to $2,000. This doesn’t seem so outlandish anymore.

I just keep up with price and volume action to gauge whether or not to keep a stock or commodity, but round numbers are psychological levels that often act as magnets when a stock or commodity is on a momentum move.
I’d aggressively buy gold on any slight pullbacks right now, with a reasonable stop in place.

Some Healthy Pullbacks

The stock market continues to tack higher. Despite the markets moving higher today, several leading growth stocks pulled back. IBD noted this at the end of the trading session. Most pulled back on mild to low volume, which is generally constructive.


In fact, it’s more than constructive, it may offer you a buying opportunity if you missed the initial break outs.

Here are some stocks that already were or pulled back into a buy zone (within 5% of the pivot point):
BIDU
CAVM
DE
HS
JOYG
RAX
SOHU
TTMI
UA

For the record, I bought two of these, DE and RAX. DE is a slow mover but I felt its low volume dip wasn’t a sign of caution and that it would challenge $100 again soon.

On RAX, after a very strong break out, today’s pullback to its 8 EMA seemed a good opportunity to pick up a market leader at a slight discount.

I am keeping these purchases on short leashes as you’d always rather see a break out that never looks back rather than stocks that revisit buy points or come close. Nonetheless, it’s perfectly valid to buy pullbacks as many stocks will pull back slightly then take off again.

Take a look at these stocks on IBD’s website, www.investors.com, and you’ll see they are top notch stocks that just broke out of sound basing patterns. As a footnote, I bought TTMI and HS, but then sold them by the end of the day because I didn’t like their action during the break out. TTMI finished under its buy point in something of a downside reversal.

With HS, I just decided I wanted a top notch stock that is projected to actually show growth next year. HS is projected by Wall Street analysts to have zero EPS growth. Sometimes I change my mind like this. While I’m a just get in the game sort of trader, with so many stocks to choose from, it’s ok to be choosey.

Charts of DE and RAX are below. The arrow shows where the price action fell into support on their respective 8 EMA's. For Deer, it was a low volume dip (suggesting the big money wasn't selling) even though the stock finished at the bottom of the day's range. For RAX, I liked how the stock finished in the middle of the range. Generally finishing in the upper half of a stock's range shows support.
 

Knowing How to Use IBD to Make Money

The Investor’s Business Daily is an excellent source of top notch stocks. It will help you identify stocks that are about to break out and make you money. However, you have to know how to use IBD properly.
Below are some instances I’m sharing with you in how I disregarded and how I listened to the IBD, and how I both made quick money – and how I missed out on making a lot of quick money.
Even though IBD has solid rules in place, there is still wiggle room and situations that are open for interpretation. So as you read columns in the paper, just know the reporter’s or editor’s view is what you are reading, and it isn’t always a crystal ball.
A case in point is the current uptrend. The market had just sold off over 7% and was in the process of rebounding. During the turnaround ascent, which we are still in, stocks quickly began breaking out. TZOO is perhaps the most dramatic example. I didn’t even consider it at the time because we were not in a market uptrend, but were in an IBD designated “market in correction” phase. Therefore, I did not buy the stock.
The date was March 22 when TZOO broke out and the S&P500 was just below its 50 day moving average. The next day, BIDU broke out; the day after, OPEN broke out. These were each high quality stocks I very much wanted to get in if the market resumed an uptrend.
I have found it very profitable to only trade break outs when IBD determines if we are in an uptrend, and unprofitable when IBD determines we are in a market correction. Their methodology is sound and time-tested.
This time, however, with top rated stocks breaking out of sound bases on strong volume all over the place, I had to act, despite the fact that IBD still wasn’t calling the market an uptrend. They were noting the break outs, but without turning that all-clear switch of “market in uptrend” on.
I bought OPEN the day it broke out and also got a position in BIDU. I didn’t want to push my luck and chase TZOO (too bad) because I had been burned in January and February buying stocks3% or more beyond their buy points.
Three days later I decided to take profit in OPEN, and I sold BIDU at no gain/no loss because IBD still hadn’t pulled the trigger and I felt they knew something that I didn’t. I didn’t want to push my luck. I was able to double my option in OPEN on that strong little break out, so I was happy.
However, this same day LULU broke out, but finished just below its buy point. In a normal uptrend, I’d had bought it because LULU is a top notch stock that I’ve been watching a long, long time. But again, IBD scared me out of this one.

It wasn’t until two days later – the night of our stock group meeting – that IBD decided to retroactively put the market in an uptrend based on the prior Thursday’s action on the NASDAQ in particular.
So while I ignored IBD and jumped on one of my favorite stocks, I also dumped it out of fear, and I missed out on TZOO and LULU, just to name a couple of stocks.
Since their breakouts in the rally that IBD didn’t call, here is how much each of these top quality stocks are up:
BIDU: 8.6%

LULU: 6.5%

OPEN: 13.3%

TZOO: 42.9%

 

 
 

 
The lesson here is to go with what you know, not what someone else knows. If you see it, you like and you have conviction behind your thoughts, act on it.
 
So while IBD was late to the party and the train had already left the station for some top quality stocks, there are still stocks worth watching for break outs in. I will post those shortly.

8 Stocks Inches Away From Open Sky

The stock market has raced off its recent lows to challenge its recent highs and in doing so, several leading stocks have done the same. After running a scan a couple days ago of stocks that meet IBD's growth criteria, I came up with a list of stocks worthy of keeping an eye on.

Below are charts of eight of these stocks that are teasing their recent highs. Not all these stocks are in leading industry groups nor do they all have the 17% ROE IBD likes to see, but you can't always get the super model either. Don't aim for perfection, aim for what is practical.

If this market is for real (IBD was hesitant in calling the current environment a market uptrend, so bear that in mind), several of these stocks could bust out of their consolidations and shoot right past their buy points without so much as kiss goodbye.

The daily charts of these stocks are all below. Do your research. I don't plan to buy all of them, only the ones that really catch my eye on a legit break out. Once again, thanks to http://www.freestockcharts.com/ for the charts, which you can use to get real, free time data. I am not paid to say this. I just like them very much.