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stock recommendation, stock investment information
Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: Why is the following considered bearish: Head and shoulders patterns are stated as signs of a turndown in your newsletter, but that pattern looks like a base, a surge, and a then pullback. So what is so bad about that (as long as it doesn't break support)?
A: The reason stock patterns are useful in foretelling stock movements is that they represent in a graph how investors view a stock. Understanding investor sentiment as shown in a stock chart is one of the keys in understanding stock movements. In our online seminars we discuss each signature pattern and explain what to look for and what the psychology is behind each one.
In a head and shoulders pattern there is an initial attempt to rally that pulls back. No big deal; we know stocks rally and then pullback all the time. We like to see them stacking up these little pyramids one on top of the other as they move higher, preferably with volume higher on the move up and then lower on the pullback (often the pullback is to the 18 day MVA). Back to the pattern. When it makes the next move, it makes a higher high. Nothing wrong with that. On the pullback, however, it undercuts the uptrend and falls back down to the point where it tested lower on the prior bounce.
That is a problem or at least the start of a potential problem. The uptrend did not hold as the stock came all the way back to that prior low. That is a change of character in the move. Now if it happened after a longer uptrend and found its way back to he 50 day MVA, that is usually a good entry point if volume surges on the move up off the 50 day MVA. But there is another problem. It is under two prior highs, the left shoulder and the head. Those represent overhead resistance at two higher levels. Overhead resistance is where buyers bought but the stock dropped on them. They are unhappy. They tend to bail out when the stock gets back to that point.
If volume on the move up does not surge, and if the move back up does not take out the left shoulder's high, the problem gets worse. The overhead supply has held as sellers unloaded their shares. If the stock breaks below the neckline (the low of the left shoulder and the start of the right shoulder), that shows there are no buyers anymore, and the stock is heading lower. Usually it falls to a level equal to the points between the neckline to the top of the head.
THE PLAYS:
Good movers: As expected, we had to change gears on INVN, and with that it broke out on strong volume from the little cup with handle. Is heading for the December high at the start of the base (47.09).
TROW's high for the day was a cent under our buy point of 37.75; the stock took off from the 18 day MVA and volume was a bit lower though still above average. May push that up tomorrow for the breakout!
ECL continued higher on a Wednesday bounce from the 10 day MVA in a test of the cup with handle breakout. Volume was above average; the stock remains a buy up to 44.19 on this move.
STK: Pumped up the volume on its breakout as those numbers blasted above average and the stock closed just three cents off the high. Remains a buy on breakout up to 24.68 (closed at 24.47) but on this surge may head above that. No news to explain the volume pop.
Previously covered and looking good: We have gotten a very nice run from NETA since it hit the buy point (23.63) mid-November. The stock closed today near $30.
DKWD broke to a new all-time closing high on strong volume, continuing to bounce from the 18 day MVA that started yesterday. The move was smaller despite the higher volume, however. Target is 71.
Continued plays that look solid: See Wednesday report for more details.
ACDO: Still a nickel above the 18 day MVA as it tests the breakout. Its 4th doji and lower volume again.
Continued Plays:
USAI (Usa Networks--$28.59; +0.29; optionable): Media
http://biz.yahoo.com/p/u/usai.html
STATUS: Broke out of the 21-week cup with handle, then pulled back rather quickly, holding above the previous January high (handle high at 27.85). That put the buy point at 27.95, above which USAI held on today's opening price of 27.99, before it headed up for the small gain. Volume was still strongly above average though relatively lower than that of the breakout, and it was down somewhat to 7.8 million (avg. 3.4 million). Looks ready to move back up, and we just might get a much strong breakout after this test. Target is 35. Strong money flow and buying.
BUY POINT: Hit the aggressive buy point of 28.50 for the bounce up after the test. Can take new positions over today's high (28.75) on again rising volume.
POSITION: Stock and/or April $25 calls to buy (QTH DE).
http://www.investmenthouse.com/ct/usai.html
New upside:
GGG (Graco--$38.45; +0.30; optionable): Manufacturing: Machinery
http://biz.yahoo.com/p/g/ggg.html
STATUS: GGG made a nice bouncing run from the 50 day MVA that started 7 days ago (earnings out that day, in line with expectations), after the stock had broken out of a flying 'w' pattern in December and bounced twice from the 10 day MVA. After the move back down to the 18 day subsequent to the recent run, GGG looks ready to make a bounce from the 18 day MVA (38.15). Volume was very strong on a surge Thursday (185,600; avg. 71,136). Money flow, buying and relative strength all looking good. Target: 45.
BUY POINT: Aggressive: 39.15 on continued strong volume. Stop: 36.41 (7%)
POSITION: Stock and/or May $35 calls to buy (GGG EG).
http://www.investmenthouse.com/ct/ggg.html
VVTV (Valuevision--$18.82; +0.31; optionable): Retail: Catalogs
http://biz.yahoo.com/p/v/vvtv.html
STATUS: This stock is in a 2-year base but more recently in an 8-month cup with handle, the handle pulling back to the 50 day MVA on overall decreasing volume. The highs at the start of the cup base are near 26, in the handle just above the 20 range. Volume was up Thursday, still below average but improving to 147,300 (avg. 225,409) as the stock bounced from the support (50 day MVA is at 18.22). Looking for a move over the 18 day MVA (19.08) for an ultimate breakout over the January highs. Solid buying. Target: 25
BUY POINT: Aggressive: 19.30 on volume of 300,000 or higher. Stop: 17.95 (7%). Breakout from the cup with handle: 20.65 on volume of 338,000 or higher. Stop: 19.20 (7%)
POSITION: Stock and/or March $15 calls to buy (UVR CC).
http://www.investmenthouse.com/ct/vvtv.html
RJR (Rj Reynolds--$59.75; +1.40; optionable): Tobacco
http://biz.yahoo.com/p/r/rjr.html
STATUS: RJR is in a 9-month flat-type base (it formed a short double bottom in September from which it broke out; the double bottom dipped below the 200 day MVA as seen in the chart) that has an overall ascending wedge character. That is because the stock has hit highs three times at the same general level. However, since October RJR formed a saucer, pulling back in the handle off of the January high (60.40). Price really settled out the previous 4 days (though volume did not) above the 50 day MVA, but on a volume surge today shot up from the lateral pattern (684,200; avg. 422,000). Now the stock looks ready for a breakout. Target: 73
BUY POINT: 60.50 on continued strong volume (minimum for breakout is 633,000). Stop: 56.27 (7%)
POSITION: Stock and/or May $55 calls to buy (RJR EK).
http://www.investmenthouse.com/ct/rjr.html
Previously covered and looking good: DSTM hit our buy point for the MVA bounce (7.55) but didn't move much from there, instead forming an ascending wedge with support at the 18 day MVA. Looks like it will mount a breakout move (was up on lighter volume today, closing at upper resistance in the pattern). Buy point is 8.52 on volume in the range of 166,000, for stock and/or May $7.50 calls to buy (DQK EU). Target 10.25. Including chart link:
http://www.investmenthouse.com/ct/dstm.html
AZPN (Aspen Tech--$19.90; +0.65; optionable): Software
http://biz.yahoo.com/a/azpn.html
STATUS: Broke out over the 200 day MVA and the previous January highs, then at 20 pulled back and tested to the 10 day MVA. It bounced from there Wednesday and on stronger volume moved up to the 20 resistance again today. Is going to try and break it here (volume up to 651,700; avg. 457,000). Showing great money flow and buying; AZPN is off the lows near 9 in a 3.5-year base. Target: 25
BUY POINT: 20.25 on continued rising volume. Stop: 18.83 (7%)
POSITION: Stock and/or May $17.50 calls to buy (ZQP EW; low open interests).
http://www.investmenthouse.com/ct/azpn.html
EGOV (National Info Consortium--$4.10; +0.21; no options):
http://biz.yahoo.com/e/egov.html
STATUS: Got this one on the breakout from the ascending wedge, and now it has tested back to the 18 day MVA (3.93). Volume has been low on the pullback, but Thursday bumped up a bit to 59,500 (avg. 112,000) and the stock bounced up from the support level after it opened there on a small gap higher (had closed below the 18 day previous session). The stock has a good opportunity here to make its first 18 day bounce after the breakout came off a 50 day MVA bounce earlier this month. Super money flow (ahead of price) and buying. Target: 6
BUY POINT: Aggressive: 4.14 on volume of 113,000 or higher. Stop: 3.85 (7%)
POSITION: Stock.
http://www.investmenthouse.com/ct/egov.html
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Good Investing!
Jon L. Johnson and the Technical Traders 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 of 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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stock recommendation
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