Date: March 23, 2008
Charts provided by Bigcharts.com
Fundamental Data provided by Investors Business Daily
F.I.T. STOCKS
Finding High Quality Growth Stocks to Build Healthy Investment Habits.
Market Update
MARKET HEALTH: Market Condition Yellow Light waiting for GREEN: RALLY CONFIRMED IN THE DOW!
The Dow Jones Industrial Average on Thursday March 20, confirmed its rally according to the rules set out by William O'Neil of Investors Business Daily. These rules state that when the indexes have a reversal day, we then wait 4-12 days for another strong up move on 1.7% higher volume then the previous days volume. The first reversal day came on the DOW 8 days ago and Thursday marked its confirmation day.
What does this mean for the Healthy Investor? This DOES NOT MEAN we jump right back into stocks full speed ahead. Just because a new rally confirms DOES MOT MEAN we are out of the woods. For us it means to prepare our BUY LIST of High Quality Stocks and be ready for battle. We DO want to get involved in the markets at the beginning of a new rally, but more so to test the waters. So at this time if a high quality growth stock breaks out, we may only want to invest a small amount of our capital at first. We recommend not buying any more than 300 shares of any given stock until the markets can really show us their strength. If the strength continues we jump in a little more and so on, until we have built a nice team of high quality growth stocks.
Let us take a look at the 6 month DOW chart:
Let's review how the DOW confirmed its new rally. The rules for spotting a market bottom, according to William O'Neil founder of Investors Business Daily, are that one of the major indexes will have its first rally day, a day in which prices close above the previous days close following a down trend. If prices ever undercut the lows of the first rally day, the rally has failed. In the next 4-12 days we look for a strong up move in the indices on 1.7% higher volume than the previous days volume. If we take a look at the DOW chart above, #1 indicates the first day of the rally in the DOW. On day 5 the DOW tried to undercut the low of the first day, but was unable to, thus keeping the rally intact. The S&P 500 and the NASDAQ both undercut the low of their first rally day, thus making their rally attempt VOID. On the 8th day, which was last Thursday, the DOW climbed aggressively in price closing up 261 points on Volume that was 2.2% higher than the previous day's volume, #2. This is confirmation that a new rally has begun.
That being said, the stats show that William O'Neil's method has a 70-80% accuracy reading. So just because the DOW confirms it DOES NOT MEAN we IMMEDIATELY JUMP back into buying stocks. We merely PREPARE for BATTLE. Following are a couple of things to watch for:
- Can the NASDAQ and S&P 500 also confirm a new rally?
- Will new leading stocks and new industries come to the surface, and are high quality growth stocks building sound technical chart patterns.
- Will we see continued strength in the indexes on strong buy side volume, indicating that the mutual funds, pension funds, and other big money investors are backing this move up?
On a technical analysis point of view, all of the major indices are in a down trend. In the chart above you can see how perfect the down trend has been in the DOW (indicated by the yellow line). It will be a very positive sign if the DOW, and the other indices can break above these downward sloping trend lines on heavy volume. Remember these downward sloping trend lines are strong resistance right now, so we really need to see this resistance broken on heavy volume.
Top 10 Industries:
- Chemicals - Fertilizers
- Steel Producers
- Oil and Gas - US Exploration
- Machinery-Farm
- Metal Ores-Gold/Silver
- Oil and Gas-US Royalty
- Bldg-Residential/Commercial
- Transportation Rail
- Food-Meat Products
- Diversified Operations
The F.I.T. STOCK PLAN
This week we have 4 stocks meeting are F.I.T. Stock Plan criteria. To make our list of High Quality Growth Stocks a company must show
superior F- Fundamentals, be in a leading I - Industry, and have a strong T - Technical Chart Pattern.
IMPORTANT NOTICE: As healthy investors, just because a new rally has confirmed, does not mean we jump in full BLAST. NO! First, we must test the waters of this new rally. AT THIS TIME IT IS BEST TO INVEST NO MORE THAN 300 SHARES IN A STOCK. DO NOT GET AGGRESSIVE, EASE INTO STOCKS AND SEE IF THE STOCK AND THE INDEXES CONTINUE THEIR STRENGTH. If the markets continue to show strength then we can buy more high quality growth stocks. FIRST, THE MARKETS MUST PROVE THAT THIS BULL IS READY RUN!
F.I.T. Stocks Ready to RUN!
* All Charts are One year time frames with weekly price bars *
Stock: Balchem
Symbol: BCPC
Fundamentals: 9.9 out of 10
Industry: Chemicals-specialty Sector Strength: 19
Technical Pattern: The U Turn Avg. Volume: 80,000
Pivot or Buy Point: $24.33
Stop Loss: $22.63 or 7%
Profit 1: $26.76 or 10%
Profit 2: $29.19 or 20%
Balchem manufactures specialty performance ingredients and products for the food, feed, and medical sterilization markets. Currently, BCPC has built a 12 week U Turn base pattern. The volume has surged over the past three weeks, another positive sign. When BCPC breaks above its old high of $24.12 let's jump in at $24.33 on strong volume. This is a thinly traded stock, so no more than 300 shares.
Stock: Cellcom Israel Ltd
Symbol: CEL
Fundamentals: 9.8 out of 10
Industry: Telecom-wireless Services Sector Strength: 4
Technical Pattern: The U Turn Avg. Volume: 227,069
Pivot or Buy Point: $35.23
Stop Loss: $32.77 or 7%
Profit 1: $38.75 or 10%
Profit 2: $42.27 or 20%
Cellcom provides digital wireless and landline voice/data services to 2.8 million subscribers. CEL is building its second U Turn Base, this one lasting 16 weeks as the market corrected. Volume was fairly light as the stock corrected, another healthy sign. The big volume days throughout the base are up weeks, which are signs of support. It now rest 5% below its old high. When CEL breaks through its old high at $35.12 we will look to get involved at $35.23 and confirm this with big volume.
Stock: MasterCard Inc.
Symbol: MA
Fundamentals: 9.9 out of 10
Industry: Financial Services-misc. Sector Strength: 50
Technical Pattern: Cup with Handle Avg. Volume: 3,956,380
Pivot or Buy Point: $222.43
Stop Loss: $206.86 or 7%
Profit 1: $244.67 or 10%
Profit 2: $266.91 or 20%
We all know MasterCard and last week its rival Visa had its stock market debut. Earnings and sales really popped up last quarter and several stocks within the group also have stellar fundamentals. MA has shaped out a nice Cup with Handle pattern with volume drying up in the handle portion of the pattern. The handle dipped almost 17% which is more than you would like to see in a handle, but this also correlates to the steep correction the markets were taking. MA currently is $2.05 away from its proper buy point of $222.43. Look for solid volume to confirm this break above the high of the handle.
Stock: Transocean Inc.
Symbol: RIG
Fundamentals: 9.9 out of 10
Industry: Oil Gas - Drilling Sector Strength: 1
Technical Pattern: Cup with Handle Avg. Volume: 7,400,600
Pivot or Buy Point: $145.13
Stop Loss: $134.98 or 7%
Profit 1: $159.64 or 10%
Profit 2: $174.15 or 20%
Transocean provides offshore contract drilling for oil and gas wells worldwide. Its earnings increased last quarter by 100% and sales were up 75%. It currently rest within the #1 sector of energy so its fundamentals and industry are solid. RIG right now has formed a perfect Cup with Handle pattern and is in the 4th week of building the handle portion. Volume in the handle has been light and below the 50 day moving average. One concern is that commodities got slammed last week and they had been the leaders of the market. If energy stocks begin to bounce again and the market is heading up jump on RIG when it hits its buy point of $145.13 on heavy volume.
There you have it 4 F.I.T. Stocks that look ready to RUN. Please remember that 70% of stocks follow the market direction, so first lets make sure this new rally has some legs. It's OK to get your feet wet but ease into this market right now until it PROVES it's ready to RUN.
Please remember to stick with your Investment business plan, be disciplined, monitor price and volume daily and make money.
Happy and Healthy Investing,
Steve Martin
Founder
www.fitstocks.com