Bozur
Amicus
Posts: 5,515
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Post by Bozur on Mar 23, 2010 23:44:55 GMT -5
Watch How Stocks Close For Day, Week
By VINCENT MAO, INVESTOR'S BUSINESS DAILY Posted 05:14 PM ET
Analyzing chart patterns involves a number of tricky parts. But there's one that is fairly easy to gauge: where a stock closes in relation to the day's or week's trading range.
Where the stock closes is one way to weigh whether buyers or sellers are in control.
When scouting bases on weekly charts, look for a stock that finishes near the top of its trading range.
Where the hash mark ends can speak volumes about how strong or weak a stock is.
Each trading day, there's a battle between buyers and sellers. Buyers want stock, so they bid up prices in order to grab shares. Sellers have inventory they want to unload. They'll mark down prices to get their stock sold.
It's at the end of the trading session that we get to see who prevails. Generally, a close near the session high is bullish. That tells you there was strong demand that day.
For example, if a stock opens near the prior session's close, rallies and ends up keeping the bulk of those gains, that shows investors' appetite for shares.
If volume was above average that day, signaling institutional buying, that's an even better sign.
A strong close is key, especially on the day a stock clears a base or a three-weeks-tight pattern. It may indicate carry-over buying in the next session.
On the flip side, if the stock finished near the low of the day or the week, that tells you that demand is weak and that sellers are there to meet the oncoming demand.
In both cases, the signal is stronger if the stock has reversed from a long trip the opposite way.
Cree (CREE) found support at its 50-day moving average in early February. From Feb. 10 to Feb. 17, it closed near session highs for five straight sessions before emerging at a new high Feb. 18.
But watch out for a stock that closes near the low of its daily range in recent sessions.
IRobot (IRBT) had some weak closes starting around December 2005. It cleared a base Jan. 18, 2006, but the breakout quickly failed.
If a stock or market index has a good run-up, hits a high and then stages a downside reversal, pay attention to how the session ends. It may signal a short-term top.
But if a stock or index that's been sliding suddenly makes a big intraday comeback, stick around for the finish. A close near the session peak may indicate a short-term low.
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Retail stocks have been some of the biggest winners in recent months. HSN (HSNI) is one of the top-rated stocks in the Retail-Mail Order & Direct industry group. The operator of the Home Shopping Network hit a record high in early January and then consolidated gains 1.
The stock fell 16% by late January. It vacillated above and below its 10-week moving average for several weeks 2.
HSN closed near weekly highs in the weeks ended Jan. 29, Feb. 12 and Feb. 19 3. Turnover was above average in two of those three weeks, implying institutional demand.
HSN cleared a 21.31 buy point from a six-week cup base in the week ended Feb. 26.
On the breakout day (Feb. 25) the stock ended slightly off the best levels of the session. Volume surged to more than twice its daily average. HSN also finished near its best levels of the week 4.
The stock followed up with four more strong weekly closes in heavy volume. HSN has surged more than 39% since its breakout. www.investors.com/NewsAndAnalysis/Article.aspx?id=528155
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Bozur
Amicus
Posts: 5,515
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Post by Bozur on Mar 23, 2010 23:52:01 GMT -5
Not All Earnings Gains Are Created Equal
By ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY Posted 03/16/2010 05:35 PM ET
Earnings growth is the most important element in the stock research arsenal.
Sure, other fundamental factors are important too, such as long-term debt, operating cash flow, return on equity and sales growth. But studies of the most successful stocks find that powerful earnings growth stands out as the defining characteristic of market winners — before they start their major price runs.
Powerful growth means 25% gains in quarterly EPS, at a minimum, in the most recent quarter or two. Big double- or triple-digit gains are even better. It suggests that a company is executing well, and able to translate top-line growth into bottom-line profit.
But big earnings numbers are a starting point, not an all-clear sign to jump with both feet into the stock.
That is particularly true in the current environment.
Business activity in the U.S. and elsewhere has picked up over the past several quarters after a profit-sapping recession. That has produced some outsize earnings numbers that figure to come back to earth later on.
Concho Resources (CXO) blasted out triple-digit earnings growth in the four quarters through September 2008. Then, as it ran up against tough comparisons, the oil producer's EPS growth slowed to 25%. Sales and earning both declined over the next three quarters.
In the fourth quarter of 2009, the pendulum swung the other way: Earnings jumped 77% against the prior year's weak comparison. Analysts forecast a 139% jump in earnings for the first quarter. That looked good. But EPS in the year-ago quarter were the company's worst since Q4 2007, making for an easy comparison.
Concho faces a more-difficult comparison in the fourth quarter of this year. Analysts' expectations for EPS growth in the quarter: Zero.
Specialty chemical maker Albemarle (ALB) also began climbing out of a four-quarter slump in the last quarter of 2009. EPS grew 52% vs. a 30% decline in the year-earlier period. Analysts see growth jumping 125% in Q1, then slowing to an 11% gain in the fourth quarter as the company butts up against its first challenging comparison.
Those outlooks don't knock these stocks out of the leadership arena. Analyst estimates are often conservative or just plain wrong. But, all things being equal, a stock with steady recent growth and forecasts for more in the future has an edge over one for which the outlook calls for slowing or stalling growth.
Also keep an eye out for earnings that rise as sales growth slows or turns into declines.
Stepan (SCL) is a good example. The specialty chemical maker's earnings growth accelerated to 433% in the fourth quarter. But that acceleration coincided with a steady decline in sales.
You want to see accelerating sales growth, or growth of at least 25% or better in the most recent quarter.
There can be various reasons for declining sales — not all of them bad. Maybe the company sold off a money-losing division, cutting its sales but boosting its profit.
But many companies over the past year pared capital spending, laid off employees and shelved development projects. Earnings gains from such strategies are not sustainable in the face of declining sales.
Basic research through news articles and regulatory filings will often explain how the company has managed to boost its bottom line. www.investors.com/NewsAndAnalysis/Article.aspx?id=527454&Ntt=
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Bozur
Amicus
Posts: 5,515
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Post by Bozur on Mar 24, 2010 0:01:01 GMT -5
Follow-Throughs Signal Market Bottoms
By ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY Posted 01/26/2010 06:54 PM ET
It's no great secret that market corrections end when the major indexes make lows.
But how do you know when a low is temporary or one that can lead to a sustained uptrend?
Decades of market research show that the most reliable bottoming signal comes some time after the actual low occurs — a type of move called a follow-through.
Major Advance, Higher Volume
A follow-through is a big, one-day advance in one or more major indexes — namely the Nasdaq, S&P 500, the NYSE composite or the Dow — in higher volume than the prior session.
It generally occurs at least four days after the bottom, during an attempted rally.
A follow-through confirms that the market has initiated a legitimate uptrend.
Follow-throughs have occurred at every significant market bottom. Yet, not every follow-through has resulted in a new uptrend.
When the market descended into a recession-bred correction in the third week of May 2008, no one knew how deep the pothole would get, or how long it might last. The market fell even as energy stocks roared and oil prices climbed toward a record in July that year.
But the financial system was under duress as the subprime mortgage crisis worsened. Lehman Bros. collapsed in September. The U.S. Treasury poured billions into gut-shot insurer American International Group (AIG) through the end of the year.
As the market slid, it occasionally bounced, but formed false bottoms or short-lived rallies.
Some Follow-Throughs Fail
Data reaching back to 1984 show about 30% of follow-throughs fail. The past two bear markets included several false follow-throughs. For example, a Jan. 28, 2009, follow-through went nowhere.
A decisive, durable uptrend didn't get under way until a March 12 follow-through. That came on the fifth day of an attempted rally in the S&P 500, the NYSE composite and the Dow. The major indexes jumped 4% or more on March 12. The move confirmed a new uptrend. In hindsight, it concluded a bear market that had begun in November 2007.
Maintaining watch lists during long market corrections can be frustrating as you watch bases deteriorate.
But an uptrend's best stocks often break out at or just after the follow-through day. Staying alert and prepared is a big part of the challenge.
The uptrend begun in March 2009 slipped into a brief correction in October. The NYSE composite and Nasdaq came about 8% off their peaks.
But a surge in the 2% range in the major indexes, on the sixth day of an attempted rally, confirmed that the market was back to its uptrend.
Almost before investors had time to stop buying, move to cash and close out all their more jittery positions, the market had bottomed.
Leaders Break Out
Leading stocks seconded the confirmation, breaking out or climbing from secondary buy areas.
The IBD 100 index spiked 2.9% on the Nov. 9 follow-through day.
The following day, for example, Priceline (PCLN) blasted ahead 18% in massive volume as it surged from a pullback to its 10-week moving average. The company rallied on a strong third-quarter report. www.investors.com/NewsAndAnalysis/Article.aspx?id=519125
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