Market Rally for Real This Time?

Oh hey, look, it's another market rally in the works, yawn.... except this one’s lasted more than a week this time. I haven’t posted here in a while mostly because I’ve been busy with my business (it’s good when busy is a part of business), but also because this market has been bi-polar.

IBD has called a rally a few times at least now in the past couple of months but they haven’t worked out. This market has been choppy and hesitant as it has grinded its way higher.

Yet the market seems to have taken on a better tone lately with a number of high quality stocks breaking out. It's wise to continue being cautious as we approach highs in the market, however, but it's also worth perhaps dipping your toe in to see if this rally really works out.

Previously, stocks would break out but fewer than you’d like would succeed. There have been only a handful of top rated break-out winners like SSYS, MLNX (but only after triggering the 8% stop loss rule and then climbing higher) and SWI. Each has been tricky to purchase, further complicating the picture. 

I’ve been stopped out four times in a row on break outs going back two months on stocks, including AAPL. Yet last week produced some nice break outs. Let’s take a look at a few.
KORS, one of my favorite stocks, broke out last week after blowing earnings expectations out of the water. This stock seems to have it all – top notch fundamentals, including triple digit EPS in the most recent two quarters, fund support, a hot product, and, while the company has been around for a while, the stock is relatively new. I favor young stocks because history smiles on the youth in the stock market, with big runs tending to happen inside the first 8 years or so of a stock’s existence.

KORS consolidated in a double bottom pattern with the blue arrows indicating the two bottoms. The red arrows indicate the two potential buy points (midpoint and left side high). The green arrows indicate possible entries. The other arrow shows that the break out happened on huge volume, the key confirmation telling us it’s ready to purchase as it passes the buy points.

FLT is a solid company that broke out last week also. It has delivered solid earnings and sales growth and has a product that is experiencing secular growth, exactly the kind of situation you want in a stock. Add to that a good industry group, all around fantastic fundamentals, stability and it also is a young stock.

FRAN is similar to KORS in that it is in the retail space. Where it differs from KORS is that FRAN focuses on finding the best product and marketing it in short supply, driving up demand. It uses smart management rather than only delivering creative genius (KORS has both), to sell product. It has a high margin, utilizing its retail space in an exceedingly efficient manner. This is a well-managed stock with room to grow, focusing on younger women who are price and fashion-conscious.

Be careful with FRAN at the moment, notice today's (or yesterday's by the time I'm posting this) downside reversal action (these are all daily charts - the red price action bar on the far right of the chart below is what I'm refering to); it indicates some hesitancy and selling. I expect that to continue into tomorrow/today. Watch how it behaves if it falls back to the handle buy point, indicated by the red arrow. If buyers like FRAN, they will step in and support the stock. Really great stocks generally do not revisit their original buy points before their big runs, but plenty of good ones do.

The common theme between all stocks? Aside from all meeting the main criteria of superb earnings and sales growth, ROE and other such factors, each stock is young with room to appreciate both in price and market share. Growth is what you want in a stock.