May 28th, 2008

JCG, NDSN and SWKS: Beautiful Charts. Timely Buys?

One day doesn’t a trend make but today’s action, beneath the surface, was more encouraging that it first appeared. The type of stocks making new highs is broadening out from strictly the energy sector. In addition, several recent IPO’s (within past 3 years) are striving hard to break into new new territory.

Take JCG (J Crew), for example. This stock appears like it’s about to break out of a symmetrical triangle just the way RL (Ralph Lauren) did today just as I had expected (note, I mentioned RL specifically and the Apparel Manufacturers and Retail-Apparel Industrial Group on May 17). Here’s the JCG chart:

I know what you’re saying. Just this morning, in answering a reader’s question about BAC, I wrote that symmetrical triangles aren’t reliable bases. But I also said that they were more reliable as consolidation patterns. This is exactly what the JCG symmetrical triangle above looks like to me. What’s most important is the direction both those stocks were trending before starting to form their triangles — BAC was trending down while JCG was trending up. If the market continues to improve and the Apparel Group continues ascending in ranking among the industry groups, JCG has a strong chance of matching the double it made before the triangle and move all the way to the 80-90 range.

As I was scanned the new highs list, a number of other stocks popped up as strong candidates for continuing to move higher:

  • NDSN (Nordson): Offers an interesting example of a 1) a breakthrough a long-term resistance trendline (1994-2003), 2) a herd’s remorse retest of the the breakout in the shape of a downward-sloping channel that lasted 18-months, 3) a perfectly formed long-term, upward-sloping channel and, finally, 4) a recent breakout from an upward-sloping triangle consolidation pattern. All of the above with continually favorable volume trends.
  • SWKS (Skyworks Solutions): Although having moved into 4-year new high territory (signaling that it’s probably cleared a significant amount of headwinds), SWKS is 20-24% below a major resistance trendline at 12.20 it has to breach before clear upside momentum can begin. You can either buy now and hope to collect that 20% gain (perhaps taking an initial position of 25% and scaling up to 100% if an when it successfully breaks 12.50) or put SWKS on your watchlist while you take advantage of other, more certain, situations elsewhere.

I haven’t reported on the MTI (Market Timing Indicator) since May 21 but, although improving, is still signaling “all cash”. Patience is difficult, especially on days like today. If you’re like me, you decide to assume the risks (even in the face of all the bad economic background news) with small, early positions in stocks that may be terrific movers when the market does get on more solid footing.

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