Archive for the ‘Stocks to Watch’ Category

Posted on September 17, 2008 - by andrew

Bullish chart - CNQR building strong cup pattern

Concur Technologies (CNQR) has been a bright spot during the market’s recent correction. It’s a member of the Computer Software-Enterprise group and has superior marks in Investor Business Daily’s Smart Select Ratings. CNQR is one of the growth stocks on my watch list that I’m really, really excited about!!!

Fundamental analysis for CNQR

Most of my research on CNQR was done by reading IBD and using the Smart Select Ratings that come with my IBD subscription. I highly recommend Smart Select Ratings if you want to save time while picking stocks.

Here’s a quick summary of CNQR’s fundamentals:

1. Group is ranked #35 - sticking to groups in the top 50 of IBD’s Industry Groups Rankings gives you the greatest chance of success.
2. Top-ranked stock in its group - the top 5 stocks in a group are usually the strongest
3. Stellar IBD Smart Select Ratings
4. Up/down volume is 2.1 - anything above 1 is bullish

CNQR has very attractive fundamentals. However, today’s Base Reader article in IBD said that Concur’s earnings were expected to slow down slightly in the next quarter. To me, that’s a risk worth taking given the strength of CNQR’s other fundamentals.

Technical analysis for CNQR

All of my technical analysis for CNQR was done using IBD’s Weekly and Daily Charts. By viewing its weekly chart, CNQR looks to be in the 6th week of a cup base. CNQR is showing a small -18% decline in its base. Here’s a screen shot courtesy of StockCharts.com:

1. Huge run-up in August (Point 1) on huge volume (Point 2) - this is a sign of strong demand by big investors
2. Soft decline much (Point 3) on very light volume (Point 4) - shows support by institutional investors
3. Building accumulation (Point 5) on higher volume (Point 6) - shows that investors are buying shares
4. Buy point is $49.09, or 10 cents above the high on the left side of the cup

CNQR’s chart looks great to me. It’s been rare in this correction to see a chart that does not have heavy distribution in it. This low distribution is the most attractive part about CNQR’s cup base.

Conclusion

I am extremely bullish on CNQR. Unless it sells off in heavy volume, I will definitely buy CNQR when:

1. it breaks out above its $49.09 buy point on heavy volume (+50% higher than average daily volume).
2. a new rally begins.

For right now, just be on the look out just in case CNQR shows any red flags.

More Reading

If you’re interested in learning more about how to find winning stocks and increase your chances of success, I strongly recommend subscribing to Investors Business Daily. I read IBD everyday so I know what’s going on in the market and which stocks are doing good or bad. Subscribe to Investor’s Business Daily Digital Edition – Get 4 Bonus Weeks!

Posted on September 9, 2008 - by andrew

Stock Chart Update: Apple Inc, BMI, CSX, STJ, MPWR

If you’ve been following the market’s behavior over the last month, you already know that July’s rally stalled and is now a correction. I wanted to give a quick update on the stocks I analyzed recently:

Apple Inc. (AAPL)

Apple has not changed much since my first post. At the time, it was shaping a cup base. It eventually stared to form a handle with a buy point of $180.45 (Point 1). It has since fell about -17% below that buy point (Point 2). I would wait until AAPL reaches the old buy point of $180.45 before considering buying it.

Badger Meter Inc (BMI)

As stated in my previous post, Be cautious with Badger Meter Inc (BMI), BMI had two red flags that warned investors to avoid buying it:

1. Only averages 142,000 shares a day - thin stock, below the minimum 300-400K shares daily volume.
2. Negative reversal on huge volume - had a big gain, then three big distribution days the week of July 25, 2008

The week after my post, BMI had a rebound on strong volume that might have suckered some investors back into buying shares (Point 1). But you can see over the next four weeks, BMI sliced through its 10 week moving average (Point 2), then crashed all the way to its 40 week moving average (Point 3).

CSX Corp (CSX)

Transportation-Rail stocks were doing well at the time I wrote my original post, CSX Corp. (CSX) forming a Cup Base Pattern. But as the rally stalled so did CSX and the rest of the rails. CSX went on to form a cup-with-handle base that ended up failing. CSX sunk to its 40 week moving average on heavy volume last week. Watch CSX to see if it can build the right-side of this current base with healthy volume.

St. Jude Medical Inc. (STJ)

St. Jude was forming a three-weeks-tight pattern as biotech stocks seemed to be amongst the leading sectors when the rally began. But STJ ended up moving sideways and formed a flat base (Point 1). The bright side is that volume has been low, which means big investors aren’t dumping shares. Keep STJ on your radar when a new rally begins.

Monolithic Power Systems (MPWR)

When I wrote my original post, MPWR broke out of its cup base on strong volume. The rally was still going strong at this point and I decided to buy some shares in MPWR (see my trading journal). But within a few days, MPWR quickly triggered my -8% loss rule and I sold my entire position.  MPWR has since sunk down to its 40 week moving average.

Posted on August 26, 2008 - by andrew

Apple forming a new base

Apple (AAPL) was a market leader for much of 2007 and fell into a correction along with the rest of the market this year. However, Apple has been forming a new base over the last few months and is just -10% below its new buy point.

Apple was a favorite of mine during 2007 as I was able to bag profits of 30-40% on two separate occasions (see trading journal). I liked how Apple was a big cap growth stock that had a high number of shares traded daily. This made it easier to buy Apple as it broke past its buy points on heavier volume. Small cap growth stocks that are more thinly traded tend to gap up which makes it harder to buy closer to the buy point. When this happens, you end up paying too much and run the risk of getting shaken out if the stock reverses later on.

Apple has had strong fundamentals for the past few years because of its successful product lines (i.e. Mac, iPod, iPhone ). If a growth stock has a strong chart and a great growth story like Apple’s, I tend to be more confident and less likely to sell during minor corrections.

Apple is currently the 2nd ranked stock in the Computer-Manufacturers group, which is ranked #21 in Investors Business Daily’s Industry Group Rankings. This group has shown good momentum in recent weeks as it was ranked #33 last week and #94 six weeks ago. When groups move up the rankings like this, its usually a bullish sign that shows sector rotation in the market. I try to look for stocks from these groups during the beginning of a new market rally.

Here is a weekly chart of Apple (courtesy of StockCharts.com):

Apple peaked at $202.96 (Point 1) in late December and began to correct into a deep base. The base bottomed out around $115.44, which equates to a  -43% correction. In How To Make Money In Stocks, IBD’s founder William O’neil recommends avoiding stocks that correct more than -34%. However, growth stocks are an exception to the rule as it is common for some leaders to correct as much as 2.5 times the major market indexes. Given the fact that the NASDAQ corrected roughly -21% this year, Apple’s status as a market leader and its reasonable -43% decline is reasonable.

Apple’s correction eventually shaped into a cup base (Point 2) over the next five months.  It started to form a handle (Point 3) with a buy point of about $192.34, or 10 cents above the handle’s high.

After a few weeks of consolidating, the handle started to look more like another base (Point 4) within the larger consolidation that started in December. This new base has been forming for the last three months. The buy point for this new base would be the same as the old handle’s buy point, or $192.34.

Apple’s current base has had a couple of weeks of distribution on heavier volume compared to zero weeks of gains on heavier volume. This is generally not a good sign as you would like to see gains on heavier volume as the base forms its right side. However, there’s still time for Apple to make gains as it sits about 10% below its buy point. The market’s rally has also stalled a bit, which is reason to be cautious for now and wait for bullish action by the major indexes.

I think Apple is still a good candidate for your buy lists. Investors should wait for two things to happen before buying shares in Apple:

1. The major indexes to show resilience and bullish action.
2. A break out past the $192.34 buy point on heavier volume (i.e. +50% above its daily average volume).

**UPDATE**: Here’s a follow-up on Apple’s chart

Posted on August 13, 2008 - by andrew

CSX cup-with-handle now flawed after days of heavy selling

Up until this week, CSX’s cup-with-handle base was forming quite nicely. But after this week’s heavy volume selling, the handle has now become flawed.  I would not advise buying CSX anymore.

I was bullish on CSX as it was forming a cup base. The Transportation-Rail group was ranked high in IBD’s Industry Group Rankings with several members breaking out of various patterns on strong volume. However, several of these stocks were forming v-shaped bases, which are more prone to failure. V-shaped bases form when the right-side of a pattern forms too quickly, thus failing to properly shake out weaker investors.

Rail stocks have suffered a bout of selling in recent sessions. CSX was no exception. This week’s heavy volume selling has now made its handle flawed. There are a few key characteristics of a proper handle that must be met:

• Must form in the upper half of the cup’s price range
• Must not decline more than -15% from the peak in the handle
• Must close along the lows of its daily price range
• Must have a decline in volume as the handle forms

Up until this week, CSX had met all of the aforementioned criteria. The heavy volume selling (double the daily average yesterday) breaks the rule of having a decline in volume. You want to see a decline in volume because that means that institutional investors are not selling.

I think that this surge in selling volume is a big red flag in CSX’s chart. I’ve learned over the years that its not wise to ignore these warning signs. Even though its just one of the criterias for a proper handle, heavy volume selling is a clear sign that large investors are dumping shares. If they don’t support the stock, it’s bound to fail in the long run.

If you do choose to buy CSX despite the heavy volume selling in its handle, proceed with caution. Stay true to cutting losses short at -8%. I have personally taken CSX off of my list of my buy candidates list.

**UPDATE**: Here’s a follow-up on CSXl’s chart

Posted on August 12, 2008 - by andrew

Monolithic Power Systems (MPWR) scores powerful breakout

The market’s rally has been going strong for the past few weeks now. Since the follow through day on July 21, 2008, the markets have had several big days on higher volume. During this time, you would expect leading stocks to start breaking out.  Remember, most leaders break out during the first 13 weeks of a rally. One of these leaders has been Monolithic Power Systems (MPWR).

Monolithic Power was ranked #19 in this week’s IBD 100. The IBD 100 is a list of the top 100 performing stocks based on earnings, price performance and leadership. Monolithic Power also belongs to the #36 Electric-Semiconductor Manufacturer group in IBD’s Industry Group Rankings. As the rally establishes itself, I expect to start seeing more tech stocks rise with the NASDAQ as it has clearly emerged as the leader amongst the major indexes.

Last week, IBD’s Daily Stock Analysis featured Monolithic Power. Daily Stock Analysis (DSA) is a feature on IBD’s site that analyzes a different stock every day. DSA was bullish on Monolithic Power and suggested waiting for it to cross its proper buy point. I like to read DSA everyday for ideas on stocks that I may not have found while doing my own research. Another reason why I like Daily Stock Analysis is that it helps improve my chart reading skills as it does a detailed analysis of a stock’s chart. Reading DSA everyday for the last two years has helped me tremendously in being able to spot patterns and buy points. I strongly recommend you check it out when you get a chance.

Yesterday, Monolithic Power broke out of a cup base pattern that it has been forming since June. Look at the weekly chart below (courtesy of StockCharts.com):

Monolithic Power started forming the left side of its base as the markets were in a correction. There was not much down volume in the base which is a good sign. The buy point is $27.60 or 10 cents above the highest point on the left side of the base (Point 1). When a stock breaks out of a cup base, you want the volume on the day of the break out to be at least +50% higher than normal. Yesterday, Monolithic Power took out the $27.60 buy point during the day and even rose as high as 5% above it before coming back to within +1% of it (Point 2). Volume yesterday was about +270% above average. This is an extremely bullish sign. In addition, MPWR has had strong volume while building the right side of its base (Point 3).

I think yesterday’s pullback to within +1% of the $27.60 buy point is a great opportunity to buy Monolithic Power. The strong volume leading into yesterday’s powerful breakout makes Monolithic Power very attractive. CAN SLIM states that a stock is still within buying range so long as it has not risen more than +5% past the buy point. MPWR is still within buying range until it hits $28.98.

**UPDATE**: Here’s a follow-up on Monolithic Power’s chart

Posted on August 8, 2008 - by andrew

Update: CSX Corp. (CSX) forming a handle

CSX is now forming a handle to its cup base. A handle occurs when a stock is forming the right side of its base and usually lasts at least 5 trading sessions.

Handles serve as a way to shake out weaker investors so that the stock has less over-head resistance to make new highs. Ideally, you do not want to see high volume in the handle, and prefer to see the stock close at the bottom of its daily range.

CSX is displaying all of the signs of a healthy handle. It’s new buy point is $69.60 (10 cents above the high in the handle.  Just watch for it to break above this mark on heavier volume (i.e. +50% above average).

Posted on August 6, 2008 - by andrew

St. Jude Medical Inc: Leading Growth Stock forming a Three Weeks Tight Pattern

The huge gains by the major stock indexes (Dow Jones +2.94%, Nasdaq +2.81%, NYSE +2.46%) on higher volume yesterday was a sign of confidence for the recent rally. This makes me have more faith in the rally and gives me a green light to start buying more aggressively. The best market leading growth stocks usually emerge during the first few weeks of a rally. One sector that has been particularly strong prior to and during the rally has been Medical stocks.

A prime example of a Medical stock that has emerged as a market leader is St. Jude Medical Inc. (STJ). St. Jude belongs to the Medical-Products group, which is currently ranked #25 in Investor Business Daily’s Industry Group Rankings. When looking for good buy list candidates, you always want to stick with stocks that belong to the top 50 in IBD’s Industry Group Rankings. I stick to this rule when screening for stocks, but I take it a bit further and prefer to pick growth stocks in the top 25 groups.

St. Jude is big-cap stock with good liquidity (+3 millions shares daily) that boasts stellar fundamental ratings in IBD’s SmartSelect® Ratings. With an overall ranking of 98, St. Jude is currently the third best stock in the Medical-Products group. I prefer stocks that are in the top 5 stocks for a group.

Take a look at the weekly chart for St. Jude Medical (courtesy of StockCharts.com):

St. Jude started a 3 month flat base back in April as the rest of the stock market was in a correction. This base would be considered a flat base pattern since it corrected only -11%. Flat bases usually correct no more than -15%. During the week of 07/18/2008, St. Jude made a huge breakout above its $45.85 buy point(Point 1). You determine the buy point of a flat base by finding the highest point on its left side ($45.75 for St. Jude) and adding 10 cents to it.

You can also see on the chart that volume for that week was extremely strong (Point 2). You want to buy growth stocks when they break out of bases on strong daily volume of at least +50% above average. St. Jude’s volume the day of its breakout (07/16/2008) was +640% its average, which is a very bullish sign. Because it broke out while the market was in a correction, it was not wise for growth investors to buy St. Jude despite its bullish action.

Since breaking out, St. Jude has shown some institutional support. It’s been forming a three weeks tight pattern for the past 3 weeks (Point 3). Three weeks tight patterns occur when the stock’s price closes within +-1% of its previous weekly close over a 3 week period. This pattern shows that instiutional investors have not been selling, but instead have been supporting St. Jude. Volume during the last two weeks has also dried up, which is a constructive sign.

I am waiting for St. Jude to break out above $48.59 (10 cents above the high in the three weeks tight pattern) on higher volume. Given the market’s strong action yesterday, I will be keeping a watchful eye on St. Jude in the next few days as it is only 2% below the buy point.

Learn more about flat bases on IBD’s Learning Center: Characteristics of the Flat Base.
Learn more about the three weeks tight pattern on IBD’s Investor’s Corner: Three Weeks Tight Presents Buy Opportunity

**UPDATE**: Here’s a follow-up on St. Jude Medical’s chart

Posted on August 1, 2008 - by andrew

CSX Corp. (CSX) forming a Cup Base Pattern

Stocks in the Transportation-Rail group have been doing well for the past few weeks. The group ranks #16 in Investor Business Daily’s Industry Group Rankings.  This is probably due to higher oil prices making rail transportation a cheaper, more attractive way to transport goods. Rising global demand for commodities also contributes to the group’s recent success.

However, buying opportunities are looking a little limited now.  A few stocks in the group like Kansas City Southern (KSU) and Norfolk Southern Corp. (NSC) have already had healthy break outs and are now extended. Other stocks like Genesee & Wyomingy Inc. (GWR) and Union Pacific Corp. (UNP) appear to be forming V-shaped bases, which are more prone to failure.

One stock that looks to be forming a healthy cup shaped base is CSX Corp (CSX). It’s ranked in the top 5 stocks in the group. Here’s a weekly chart of CSX (courtesy of StockCharts.com):

CSX has been forming a nice cup base over the last 11 weeks (Point 1) with only a -21% correction. There haven’t been any down weeks on major volume. You can also see that the bottom of the base had a couple of weeks with positive reversals (Point 2). Volume on one of the weeks was also pretty strong (Point 3). CSX is now about -4.5% away from its $70.80 buy point. CSX also has some of the strongest fundamentals in the group.

With so many top-ranked stocks in the Transportation-Rail group breaking out this week, I am waiting for CSX to break above the $70.80 buy point on at least +50% volume. So long as the rally attempt stays in tact, CSX should book solid gains in the weeks to come.

Posted on July 29, 2008 - by andrew

Be cautious with Badger Meter Inc (BMI)

It’s easy to get tempted when you see a stock like Badger Meter have a rush of volume go into it. On July 21, it had a huge gain on huge volume (+500%). Ever since then, volume in BMI has been way above the 142,000 shares it usually trades.

But it has two major red flags. Look at the following weekly chart for BMI (courtesy of StockCharts.com):

The first and most obvious one is that it only averages 142,000 shares a day. That’s too thin and way below the minimum average of about 300-400K shares you would like to see traded daily.

The other red flag is the fact that last week’s big gain was erased by 3 distribution days on heavy volume (Point 1). If you look at the week chart, that amounts to a reversal on enormous volume (Point 2). Reversals are something you definitely want to stay away from. I personally think that the fact that it was on high volume is even worse and shows you how volatile thin stocks like Badger Meter can be.