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us stock market, stock watch
Begin part 2 of 2
SUBSCRIBER QUESTION
Q: In the current uptrend, there are stocks that continue to go higher, seeming
to defy gravity. What are the conditions for a "blow-off top?" Specifically, there is one, CYD, that seems to just keep going higher, without any pull-back for a decent entry point.
A: A blow-off top typically occurs after a long run where the stock has put in a dramatic gain, often doubling or tripling. It is also more common if the stock has already moved through a series of bases and has broken out from a late stage base and raced higher. A late stage base is one occurring near the end of a series of four or five bases. The blow-off top is characterized by extreme high volume accompanied by rapid increase in price in the stock, followed by a rapid sell-off. The move up is almost ballistic. Volume is either the strongest, or close to the strongest, volume of the run. A stock in a blow-off top can gain from 50-100% in a short amount of time (usually just a few days), running to exhaustion as buyers pile in at the same time that sellers exit (those who bought on one of the previous breakouts). This explains the high volume. Because big money is now using this opportunity to sell, the stock crashes heavily in the characteristic rapid sell-off.
As a potential example that warrants caution, CYD flew up on over four times average daily volume beginning October 13 on the breakout from a 5-week flat base. That's not abnormal volume for a breakout, but the extreme price rise in the short time period (12 points in just over 2 weeks) and volume continuing to explode (up to over 9 million on a stock with average daily volume just over 1 million!) raises the possibility of a blow-off top. That 9 million in volume on October 21 showed the sellers were out in force right along with the buyers: the stock ran to a high of $29.61 but reversed as it was sold back down to $25.70, below its opening price. CYD continued higher the last few days, but volume fell back rapidly, and the stock won't sustain itself on that for long. Indeed, Tuesday the stock gapped higher again but reversed on another tremendous volume surge.
Additionally, the longer-term chart shows a series of back-to-back bases beginning back in March of 2002 for a total of five, the most recent the 5-week base noted above. This is a late-stage base, not really ill-formed but one to be cautious about since it's the fifth in a row. Often with a blow-off top the last base will not be well-formed, or there might not be a real base at all, just the explosion out of a continued uptrend. That fact and the excessive price/volume action alerts us to watch for a high volume reversal that starts the selling in a blow-off top. And since the sell-off can be as extreme as the price rise, the prudent act is to join the sellers and exit existing positions since the stock has likely moved far beyond initial targets. Moreover, a stock can collapse after such a move, losing 50% or more of its value. Sometimes it gives back the entire gain and then languishes for months. In the case of CYD, a look at the long-term chart shows how extended it is, so the stock needs to correct and consolidate before offering potential new entry points. If the selling is too severe it may not give us a new entry point for a long time.
The key to recognizing a blow-off top is to understand how the stock has been moving prior to the big move higher. Was it in a good pattern, or did the stock just blast out of a steady uptrend on screaming volume? How many bases are strung together in this move? Has a series of steady moves transformed into a wild dash higher on tremendous volume? Those are all signs of trouble. It is important to understand the stock's history, and whether or not it is showing the attributes of excess so you can either avoid moving in just before the crash or preserve some outstanding gains.
Continuing plays that still look good: AMSWA; CHT; TARO
Good movers Tuesday: BRLI; SOX; DKS; DCGN; EVCI; ORBK; OLGC
CONTINUING PLAY LIST:
LEGEND
DATE: date play first appeared on report.
PLAY: Denotes the type of pattern or play.
Upside play types: A Wedge=Ascending triangle/wedge; BO=Breakout; Cup=Cup base; Cup hdl=Cup w/handle; DB hdl=Double bottom w/handle; Dbl btm=Double bottom; Flat=Flat base; FlyPlat=Flying Plateau; Pennant=Pennant; Rv H&S=Reverse head & shoulders; Saucer=Saucer base; Test 18=Testing 18 day MVA; Test 50=Testing 50 day MVA; Test BO=Testing the breakout (could be 10 day MVA test, etc.)
Downside play types: CCall=Covered Call; DWedge=Descending triangle/wedge; Dbl Top=Double top; H&S=Head & shoulders; Put (generic downside);
PIVOT=Buy point
Tgt=Target stock price for the play. Applies to stock and options.
Vol=Volume for the most recent session.
TgtV=Target volume to enter the play.
Stop=Stop advisory point. This is advisory and we may or may not exit a play if it hits this level depending upon market conditions.
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
^SOXX 10/25 Test 50 491.11 +29.02 463.17 492 1.1M 1.1M 464.95
Current. Excellent move up.
AKAM 10/21 Cup hdl 5.99 +0.12 6.42 8 2M 2.4M 5.88
Buy Not Hit. Continue to move up the 10 day MVA on higher, but above average volume.
AMSWA 10/23 Test BO 5.89 0 6.12 7.45 114K 150K 5.62
Buy Not Hit. Gapped up at the open, but could not hold the gain to close flat on slightly above average volume. Tested the 10 day MVA and rallied. Managed to retain most of last Monday's great move. Testing the breakout.
AV 09/25 Flat 13.35 +0.4 11.38 13.65 5.9M 4.4M 12.55
Current. Tested the 10 day MVA and moved higher on stronger above average volume. Making its way up after testing the breakout.
BRLI 10/20 Cup hdl 15.63 +1.13 13.45 16.22 438K 212K 12.78
Current. Gapped up at the open and continued to move up the 10 day MVA on strong volume surge. Filled in the gap intraday.
CAMD 10/09 Pennant 7.85 -0.11 8.32 10 123K 500K 7.78
Exited. Exited the play as the stock fell below the 18 day MVA.
CATS 10/27 Test BO 7.05 +0.4 6.88 8.38 85K 145K 6.52
Buy Not Issued. Gapped up at the open and moved higher on higher, but below average volume. Tested the 10 day MVA and rallied. Recovering and moving higher after testing the breakout.
CELL 10/02 Test 18 27.24 +1.44 23.25 28 774K 1M 24.68
Current. Gapped up at the open then tested the 10 day MVA intraday on below average volume. Still in good shape.
CELL 07/21 Cup hdl 27.24 +1.44 12.83 15.51 774K 225K 24.68
Current.
CHT 10/16 Cup hdl 15.59 +0.21 15.62 18.75 482K 1.1M 14.88
Buy Not Issued. Tapped 15.73 at the day's high, but gave it back, however Nice move up on below average volume. Continue to move up the 10 day MVA.
CKSW 10/25 Test BO 3.27 -0.08 3.08 4.05 556K 300K 2.81
Buy Not Issued. Gapped up at the open, but lost the gain on much lower, but still above average volume. Tested the 10 day MVA and made a fierce rally. Still in uptrend.
CORI 10/27 Test BO 5.9 -0.2 6.19 7.75 1.2M 550K 5.82
Buy Not Hit. Gapped up at the open, but could not hold the gain to thud down to hold at the 10 day MVA on higher, above average volume. Tested below the 10 day MVA and rallied. Needs to hold here.
CVM 10/20 Test BO 1.61 +0.02 1.61 2.05 914K 900K 1.38
Current. Tapped 1.72 at the day's high, but gave it back showing a tight doji on higher, but average volume. Still in uptrend and moving up the 10 day MVA.
CVM 09/29 Cup hdl 1.61 +0.02 1.17 1.56 914K 900K 1.38
Current.
DCGN 09/20 Test BO 6.95 +0.31 4.32 5.38 608K 315K 5.96
Current. Gapped up at the open to move higher on average volume. Filled in the gap intraday. Continue to move up the 10 day MVA.
DJO 09/11 Cup 16.89 +0.09 14 16.45 46K 100K 15.46
Current. continue to move up the 10 day MVA on higher, but still below average volume. Resistance at 17.
DKS 10/13 Cup 47.7 +2.58 44.68 55.38 278K 603K 42.32
Current. Great move up on higher, but below average volume. Made a new high.
ECIL 10/02 Test BO 4.8 +0.16 4.3 5.22 170K 300K 4.42
Current. continues to move up the 10 day MVA on below average volume.
EGOV 10/07 Test BO 5.14 +0.06 5.07 6.35 223K 264K 4.96
Current. Tested the 18 day MVA and rallied to close over the 10 day MVA on higher, but still below average volume. Still in good shape.
EGOV 09/20 Cup hdl 5.14 +0.06 4.8 5.68 223K 264K 4.96
Current.
EMBT 10/06 Flat 12.37 +0.27 11.24 13.38 302K 350K 11.66
Current. Bounced off the 10 day MVA and rallied higher for a nice move on above average volume. Resistance at 12.51. Continues to move up the 10 day MVA.
EMBT 07/26 Cup hdl 12.37 +0.27 9.33 11.12 302K 400K 11.66
Current.
ENMD 09/17 Cup 4.99 +0.03 5.39 6.72 535K 890K 4.86
Current. More volatile session with 5.15 at the high and 4.90 at the low showing a doji on the 18 day MVA on higher, but below average volume. Still in the pattern.
ESPR 10/23 BO 23.06 +0.06 23.05 27.92 530K 600K 21.44
Current. More volatile with 23.64 at the high and 22.74 at the low showing a doji on slightly above average volume. Stock continues to move up the 10 day MVA.
EVCI 10/20 Cup hdl 4.3 +0.4 3.4 4.38 463K 125K 3.21
Current. Explosive move up on excellent volume surge.
GBN 10/22 Cup 1.89 -0.04 1.86 2.42 312K 300K 1.68
Current. Pull back on much lower, but still above average volume. Still managed to retain some of yesterday's gain. Still in uptrend.
GEMS 10/22 Test BO 2.76 -0.22 2.87 3.72 995K 487K 2.61
Current. Gapped down and thudded to hold at the 10 day MVA on stronger above average volume. Tested the 18 day MVA and rallied. Still in good shape.
GIGM 10/01 Cup hdl 3.35 +0.55 3.12 4.05 5.8M 2.7M 2.74
Current. Tested the 18 day MVA and rallied for an explosive move up on excellent volume surge.
GNSC 10/09 Test BO 2.6 -0.06 2.65 3.47 77K 175K 2.43
Current. Pull back on very low volume. Tested the 10 day MVA and rallied. Managed to retain most of Friday's move. Still in uptrend
IDT 10/18 Test BO 18.99 -0.19 19.51 23.28 76K 175K 18.74
Current. Gapped down to close below the 10 day MVA on below average volume. Tested the 18 day MVA and rallied. Managed to retain some of 10/9 move. Still in good shape.
IFLO 09/22 Test BO 13.58 +0.21 11.29 13.55 211K 375K 11.84
Current. Continue its move up the 10 day MVA on below average volume.
IFLO 09/09 Flat 13.58 +0.21 9.62 11.52 211K 426K 11.84
Current.
IRM 09/10 Put 36.92 +0.08 34.55 32 248K 500K 36.12
Exited. Stock began to rally so exited the play.
JADE 10/16 Cup hdl 4.38 -0.03 5.04 6.32 73K 235K 4.45
Buy Not Hit. Gapped up at the open, but gave back the move and thudded to close just above the 18 day MVA on slightly higher, below average volume. Still in the pattern.
LM 05/06 Cup hdl 82.07 +1.51 58.5 67.78 593K 610K 76.38
Current. Continue to move up the 10 day MVA to break a new high on strong volume.
LOUD 10/23 Flat 2.66 -0.11 2.75 3.78 6.1M 3.6M 2.38
Current. Gapped up at the open, but could not hold the gain on higher, above average volume. Still in uptrend and moving up the 10 day MVA.
NCI 10/25 Cup hdl 16.56 +0.91 15.41 18.55 459K 559K 14.21
Buy Not Issued. Gapped up at the open to move higher on above average volume. Did not enter the play, because it still does not have the volume we would like to see.
NEXM 10/14 Cup hdl 4.96 -0.14 5.03 6.28 477K 292K 4.68
Current. Pull back to close on the 10 day MVA on much lower, but still below average volume. Still in good shape.
NOOF 10/25 Cup hdl 4.8 -0.2 4.78 6.21 306K 280K 4.42
Current. Pull back on much lower, but above average volume. Still in uptrend and moving up the 10 day MVA.
NTES 10/24 Test 50 65.85 +0.42 64.25 75 6.4M 5M 60.45
Current. Reported strong earnings after the close but is being destroyed, down $9 from the close. Rumors were flying & a false news story was posted re SINA. NTES reported weak mobile text messaging. It appears this is only specific to NTES.
NVLS 10/28 Test 50 40.63 +2.86 39.84 47.75 9.4M 9.5M 37.72
Current. Saw the good move after the FOMC meeting as TSM upped its capital investment for 2004. Issued the alert and put it back on.
NXG 10/15 Cup 1.94 0 1.89 2.48 307K 684K 1.78
Current. Gapped up at the open, but gave it back to close flat on very low volume. continues to make a lateral move above the 10 day MVA.
NXTL 10/02 Cup hdl 23.32 +0.95 20.76 24.95 18M 27M 21.48
Current. Bounced off the 10 day MVA and rallied to make a new high as the stock moves up the 10 day MVA on average volume.
NXTL 09/17 Cup hdl 23.32 +0.95 20.64 24.75 18M 24M 21.48
Current.
ODSY 10/18 Put 29.15 +0.27 27.8 24.65 236K 511K 28.62
Current. Relief bounce. Tapped over the 50 day MVA at the day's high, but rolled over showing a doji on below average volume.
OLGC 10/18 Test BO 7.7 +0.35 7.15 8.58 685K 342K 6.65
Current. Gapped up at the open and moved higher on strong above average volume. Filled in the gap intraday. Stock continues to climb the 10 day MVA.
ONNN 10/28 Test 50 4.75 +0.35 4.65 5.88 3.4M 1.7M 4.42
Current. Saw solid volume move and issued the alert as we kept watching it.
ORBK 10/14 DB hdl 23.64 +1.33 24.31 29 100K 200K 22.89
Current. Opened below the 18 day MVA and rallied to close over the 10 day MVA for a nice move on below average volume. Resistance is at 24.43.
PDYN 09/29 DB hdl 3.32 +0.07 2.55 3.24 104K 450K 3.15
Current. Opened down below the 10 day MVA and rallied on higher, but above average volume. Still in the pattern.
PHTN 10/22 Dbl Top 31.95 +1.2 29.64 26.05 452K 476K 30.82
Buy Not Issued. Gapped up at the open and then moved up to 33.05 at the day's high, but gave it back on stronger above average volume. Have not entered the play because of the gap ups have not given us a chance. Will watch for a pull back.
PKI 10/09 DB hdl 18.25 +0.51 17.18 20.65 828K 1.1M 16.21
Buy Not Issued. Another nice move up on above average volume as the stock climbs the 10 day MVA.
PUMA 10/27 A Wedge 6.85 +0.2 6.78 8.48 3.5M 1.4M 6.18
Buy Not Issued. Gapped up at the open and moved higher to 7.09 at the day's high, but gave it back showing a tight doji on very strong volume. Did not enter the play because the stock gapped up. Will watch for a pull back.
QLGC 10/14 Rv H&S 56.39 +3.39 52.88 63.38 5.5M 7M 51.32
Current. Bounced off the 10 day MVA and rallied for an explosive move on stronger above average volume. Has not made this high since Jan 02.
RETK 10/06 A Wedge 10.23 -0.01 8.49 10.25 887K 776K 9.34
Current. Gapped up at the open, but then gave it back on higher, above average volume. Still in uptrend and moving up the 10 day MVA.
SINA 10/24 Test 50 43.56 +0.14 41.55 50 23M 15M 39.42
Current. Down $2 after hours on NTES news but even before that there was a false press release issued on Reuters regarding initiated coverage on the stock & it sold while market rallied. It appears NTES problems are company specific.
SINA 09/09 Cup 43.56 +0.14 36.15 41 23M 12M 39.42
Current.
SINA 08/18 Test 50 43.56 +0.14 32.2 38.25 23M 10M 39.42
Current.
SIRI 10/16 Cup hdl 2.27 -0.17 2.56 3.17 113M 8M 2.36
Exited. Exited the play when the stock tanked on strong above average volume.
SNCI 10/18 Test BO 7.48 +0.13 8.06 10 31K 120K 7.44
Buy Not Issued. Moved up to close on the 10 day MVA on below average volume. Tapped 7.80 at the day's high, but gave it back. Still in good shape.
SOFO 10/02 Test BO 2.22 +0.09 2.05 2.74 401K 395K 2.11
Current. Moved up off the 18 day MVA and rallied to close on the 10 day MVA on average volume. Tapped 2.34 at the day's high, but could not hold the gain. Still in good shape.
SOHU 10/24 Dbl btm 37.17 +0.22 37.69 45 6.5M 9M 34.85
Current. Caught up in SINA false story intrigue & NTES earnings
after hours. Down $2 immediately after hours but trying
to recover later.
TARO 10/08 Cup hdl 63.38 -0.12 61.51 73 154K 501K 61.32
Current. Narrow trading range showing a doji on below average volume. Continue to make a lateral move along the 10 day MVA.
TELM 09/30 Test BO 1.66 -0.04 1.51 2.04 2.3M 7M 1.48
Current. Pull back on very low volume. Tested the 10 day MVA and rallied. Managed to retain some of yesterday's move. Still moving up the 10 day MVA.
TLCV 09/23 Cup hdl 6.93 -0.21 7.16 8.62 919K 1.1M 6.79
Exited. Exited the play as the stock fell on stronger volume.
TLGD 10/22 Put 15.12 +0.12 14.98 13 104K 200K 15.82
Buy Not Issued. Relief bounce on slightly lower, but still above average volume. Tested the 200 day MVA, but rolled over. Needs to roll over or will look to drop.
TSCO 06/03 Rv H&S 42.6 +1.3 23.42 27.62 318K 603K 37.96
Current. Gapped up at the open and moved higher on very low volume. Filled in the gap intraday. Continue to move up the 10 day MVA.
TSCO 04/24 Cup hdl 42.6 +1.3 21.88 26 318K 603K 37.96
Current.
TSYS 10/14 Test 18 5.09 -0.06 5.05 6.15 217K 120K 4.98
Current. More volatile with 5.29 at the high (10 day MVA) and 4.80 at the low closing over the 18 day MVA on average volume. Testing the breakout.
TSYS 08/14 Test BO 5.09 -0.06 3.54 4.45 217K 120K 4.98
Current.
TTP 10/07 Cup 3.18 -0.2 2.87 3.68 342K 221K 3.18
Exited. Exited with a trailing stop as the stock thudded to close on the 18 day MVA on much higher, above average volume.
TXN 10/23 Test BO 29.35 +1.25 27.65 33.18 19M 18M 25.68
Current. Gapped up at the open for a great move on higher, above average volume. Continue to move up the 10 day MVA.
ZMH 08/09 Test BO 62.81 +1.39 51.12 59.55 1.1M 3M 58.94
Current. Continues to move up the 10 day MVA on below average volume.
Good Investing!
Jon L. Johnson and your IH Alerts Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP. or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners in Online Investment Services, LP. or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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