January 8th, 2006

It’s Raining Price Breakthroughs

I last spoke of an impending market break out on November 20 (read Markets on the verge of a break out) and we may be in the middle of it now. When thinking of individual stocks, we like to see gaps up and higher than average volumes. We’re not seeing that now in the case of the overall market …. no 2+% moves on huge volumes.

But perhaps that’s good. There’s still much skepticism on whether the market can advance significantly at this late stage (some say we’ve been in a “bull market” since the S&P 500 bottomed in March at 800). The “consumer is tapped out and heavily in debt” other analysts are saying. “Markets have a difficult time in mid-term elections”.

So it’s understandable having the market breaks into new recovery high territory is understandably reserved. As this unfolds, perhaps what we’ll have to patiently wait through a retracement and testing of the resistance trendlines (now as support lines) over the next quarter before making the final assault on true new high territory. In the meanwhile we can enjoy the breakthroughs in individual stocks.

I was inundated last week with stocks that have been on my watchlist for several months finally successfully breaking through resistance level trendlines. The stocks in my watchlist that hit their trigger prices included:

ACTG $7.50
BEAS $10.00
CPSI $44.00
DECK $30.60
DRE $35.25
DXPE $20.00
FFFL $34.50
HIT $70.40
IACI $29.75
JNS $20.25
MOT $24.00
NATI $34.00
NTES $60.00
QCOM $47.00
RHAT $29.00
SHLM $22.50
THQI $25.00
XRTX $20.00

As an example, take a look at Janus Capital Group (JNS):

Another asset management company (see my comments on Eton Vance on December 27 or my ind-depth look at Allied Capital on October 18), Janus went public at around 45 at the height of the tech bubble riding on the coattails of its famously successful tech funds. But almost immediately, it collapsed along with the rest of the NASDAQ and by March 11, the beginning of the current market turnaround, it was less than 10, for a 75% decline.

The stock formed a classic pennant consolidation pattern between March, 2003 and October 26, 2005 when it broke out with a 10+% gap on higher than average volume. It consolidated after a quick 30% move to the resistance trendline that stretches back to 2001 at around 19.

Last Friday, it broke through that resistance level trendline with another gap move of 7%, again on high volume.

With all these stocks making breakout moves to pick from we’ve been patiently waiting for this and now definitely feel like a kid in a candy store. The challenge now is deciding whether to swap out of current positions and jumping on some of these new movers.

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