July 31st, 2005

While this past week was an excellent one

While this past week was an excellent one as measured by major indices, many commentators are reserving judgment as to whether the moves add credence to the view that a new bull market up-leg has actually begun. The COMPQX closed the week at 2185, marginally above the 2150 resistance described in my July 16 note. And the SP500 closed at 1234, also above the 1220 resistance level. Only the DJ30 seems to be lagging.

Don’t take my word for it. Read, for example, Don Worden of Worden Brothers’ TC2000. On Thursday, July 28 in a report called “A Wary Eye” he wrote (my emphasis):

All trends are still up, and I’m still suspicious because of the lack of overt enthusiasm. When averages move into new high ground – whether one year or four years – it is natural and expected for them to be impressed with themselves, to show some excitement. This isn’t happening.

When stocks edge up instead of soaring up once they’ve found some open space, I get the feeling I’m looking at consolidations as opposed to trends. An upward slanting consolidation is a cousin of a “rising wedge.” And a “rising wedge” is bearish. I don’t have the ammunition for making an outright bearish case for the Short-to-Subintermediate trends.

Breadth, as a matter of fact, was quite strong today. But I do have some grounds for suspicion. And remember, it’s YOUR MONEY, and you have a right to insist the market be like Caesar’s wife – “above suspicion.” The market won’t agree to that, so all you can do is keep a wary eye on the wench.

Having said that, many stocks have had tradeable money-making breakouts over the past couple of weeks. To maximize the opportunities in these and other future breakouts, I’ve assembled several watchlists with my broker and asked them to alert me immediately when the prices for these stocks go above what I consider the resistance levels for those stocks. Some resistance levels are fractions above the current price price while others are significantly more, possibly even 30% higher. Price Alerts (i.e., stocks breaking through resistance levels) for the following stocks were recently issued: ADVS, ATVI, CNET, FAST, GNSS, HRS, ISRG, LOGI, MTSC, NFG, ORBK, QCOM, RATE.

Caught in the wake of the burst tech bubble, RATE plummeted after its IPO in 1999 at around 10 all the way to approximately $0.50 in 2001. It began a huge recovery in 2002 rising to around $20 in October 2003, a level which has been a resistance level since. By setting up a price trigger at that level, I was alerted to buy the stock at the beginning of July as it began to break through that resistance. It closed this week at $24.91.

In addition to the stocks mentioned early in July, stocks attempting to break through resistance levels include:

Stock Current Resistance
ISSX 22.77 24.75
KSWS 33.77 34.75
MGI 21.04 22.00
MNST 30.37 31.00
MXRE 22.95 24.00
NILE 33.26 35.00
NMHC 25.93 27.00
NVDA 27.06 28.00
OLG 36.00 38.00
OMM 18.03 21.00
OSG 62.05 66.00
RAVN 26.42 28.00
SAP 42.82 45.00
SBUX 52.55 57.00
SNIC 19.20 22.00
SWK 48.93 51.00

You should note that 3 of the above (OLG, OMM, OSG) are shippers. This industry group appears as if it may soon complete a consolidation period that began last December after a stupendous 24-month, 10-fold meteoric rise. (Jim Cramer is negative on the sector citing erosion in the group’s pricing power.) I suggest that if price moves over the next several of weeks continue to improve up to and through the upper end of the consolidation range (i.e., resistance level) begun last December new investments in the group would be warranted.

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