June 14th, 2008

Pollution Might Get Hot

Looking for an industry group that appears to have good prospects for some growth in the near future? Take a look at the Pollution Control Services and Pollution Control Equipment groups.

The group came into focus as I was scanning for stocks with some positive momentum using a variety of scans including: New 4-year Highs, New 12-mos. Highs, Big Price Moves, Price Gaps, Relative Strength and a conventional Momentum scan. One stock that appeared on several was AW (Allied Waste).

I next look for other stocks in the groups to see whether their longer-term patterns have any similarities. Why? Because of Prof. Benjamin F. King’s Law that “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own.”(Market and Industry Factors in Stock Price Behaviour, Journal of Business, January 1966). Having many stocks in an industry moving together (market and industry) provides a huge tailwind to individual stocks and reduces the risk of short term losses.

Back to the Pollution Control groups. What you see are many that have or are about to move higher. Almost exactly a year ago (May 26, 2007) when those groups were then about to break into new high territory. Those expectations were foiled by the sub-prime credit crises. It looks like the group’s back and ready now to make another attempt.

Interestingly, it’s some of the same names as last year plus a whole lot more (click on bold symbols to view charts):

  • AW (Allied Waste)
  • CCC (Calgon Carbon)
  • CLC (Clarcor)
  • CWST (Casella Waste)
  • EEI (Ecology & Environment)
  • HDSN (Hudson Technologies)
  • IDSA (Industrial Services)
  • MFRI (Mfri)
  • PMFG (Peerless)
  • RSG (Republic Services)
  • SRCL (Stericycle)
  • TISI (Team)
  • TTEK (Tetra Tech)
  • WCN (Waste Connections)
  • WMI (Waste Management)

I wish I could tell you which would be the best for you but it all depends on your style of investing/trading. Consider the stock’s capitalization, yield (if any), average trading volume, institutional following, sales and profit growth. Those I like best and will consider buying, exclusively from a purely subjective stock charting perspective (likelihood of significant upside with less downside risk), are the one’s in bold.

The discouraging view is that this group peaked around the same time as the market did last year and you know how pessimistic I am about the general tone of this market today. Does it mean , therefore, that the past will repeat just as the group is about to break out to new levels? No one can know for sure (or they’d be on some private island somewhere counting their riches) but it means that caution and a large dose of skepticism is warranted even though the charts look exciting.