April 27th, 2009
We got a taste of something sweet today and now want more. It got really close today, above the 875 resistance trendline, all the way to 882. The Index continues to crawl closer to the 180-day MA which was at 929 and is dropping at the rate of about 2 points/day. At this rate, a Memorial Day cross over in preparation for much welcomed Summer Rally definitely looks possible.
If you’ve missed out in this huge rally from the bottom on March 9 (as most of us to a large part have because of our concern that it might be a “bear trap”, a “suckers’ rally”, what can we do now? The first thing for you to do is to recognize that should this crossover happen (which I’m almost certain will happen) it won’t be the end but the beginning. The only thing that it in all likelihood signals is the end of the Bear Market. What you can do is to look for stocks you think will lead when the upside momentum finally begins (as distinguished from the right hand side of the bottoming process recovery).
Most bloggers and “talking heads” aren’t usually held accountable for their recommendations. They issue so many “buy” calls and rarely find the need to follow up with “sells” when it’s time to leave a position or tell you when a recommendation failed. [They leave it up to the individual since those pro’s have no way of knowing if and when their audience actually acted on their recommendation.] In the interest of transparency, I’d like to track the recommendations I’ve recently made here so you can begin assembling your own watchlist.
For example, I posted a list on March 19 in “The Debate is Settled: The Market Has Hit Bottom” of stocks that I thought were in the process of making excellent reversal patterns and might be future leaders as the market turned around and added more names on March 27 in “Now’s The Time To Be Prudent“. I’m not embarrassed to give an update on the 200+ stocks in that list [click here for an updated spreadsheet of those original nearly 200 stocks].
Through April 24, the S&P 500 has risen an additional 6.2% but stocks in that list that had crossed above their trigger prices have increased 16.9% above those prices (and 20.9% above their March 27 prices). Those that had not yet crossed above their Alert Trigger prices are actually still 13.7% below those triggers and have increased only 3.8% above their March 27 prices. This demonstrates why waiting for a confirmation (i.e., crossing a resistance trendline) of the stock’s momentum capability is critical.
Since that list, I’ve identified more stocks building clear reversal patterns in synch with the market’s bottoming process. This “Trigger List Addendum” list includes another 110+ stocks. These stocks are father behind in the basing process than the first list, fewer have crossed key moving averages and only a handful are among the IBD 100. But if and when the market does complete the base and turn, many in this list should also become leaders. [I’ve added in both lists the “Volatility” for each stock to facilitate comparison.]
What can you do with these lists? You can go to your charts (you might want to try Worden Bros. new website, FreeStockCharts.com, punch in the symbol and take a closer look at what I’m referring to as clear reversal patterns. When you get there, you should be able to start keying in a symbol and the system should start presenting you with a choice of stocks. For example, you should be able to see the following for CIEN, Ciena (click on chart to go there; requires a download provided here)
I’ve given you a lot of material to work on. You don’t have to be smart to pick good stocks when the market is moving up but you do have to have a place to begin. You have to know how to separate the grain kernels from the chaff. Charts with clear reversal patterns are a good place to begin.