Date: August 19, 2007
F.I.T. STOCKS
Finding High Quality Growth Stocks to Build Healthy Investment Habits.
Market Update
MARKET HEALTH: Market is Correcting
We saw some wild swings in the market over the last two weeks. Monday, August 6 the S&P started the first day of its rally attempt. By Tuesday, August 14, the S&P's rally had failed when the index closed below the first day of the rally attempt. Remember, between days 4-12 ( according to William O'Neil, Author of How to Make Money in Stocks ), we would like to have seen the S&P surge in buy side volume by 1.75% higher than its previous days volume to confirm the rally. This did not happen. Wednesday the markets sold off again with credit worries being the main culprit. Thursday, it looked like the bottom was going to fall out of the markets, when suddenly in the last hour or so of trading they made a miraculous comeback. The DOW had been as low as 343 points, but only finished down 15.
Thursday, August 16, began the first day of a new rally attempt by the S&P as it closed above its previous days close. The DOW and Nasdaq followed on Friday. What we would like to see now is in the next 4-12 days, ( according to William O'Neil, Author of How to Make Money in Stocks ), is a strong volume surge of 1.75% or higher than the previous days volume in one of the major markets. This will confirm the new rally. If the low of the first rally day is undercut the rally is considered a failure and we then wait for the next rally day to begin. Patience and Discipline are the keys to healthy Investing.
Please remember that market corrections are a healthy sign for the market and stocks. A market correction allows for our F.I.T. stocks to build healthy bases so that we are ready to pounce when the market confirms its new rally. This is not the time to avoid your stocks because you have seen some profits eaten away or even taken some losses. At this point you should be mostly in cash, and keeping only your best performing stocks and monitoring them closely. In a tricky market like this DO NOT be afraid to take your profits early, and DO NOT let a profit turn into a loss. Healthy Investing means you keep your profits and cut your losses short.
Lets review the chart of the last two weeks market action and the rally attempt in the S&P.
On this 6 month chart of the S&P you can see the rally attempt that began two weeks ago on Monday Aug. 6. ( First yellow circle ). Tuesday and Wednesday saw good gains, and it looked like we were heading for a confirmed rally attempt. Thursday was a sell off, and by Friday we were hanging out at the 200 day moving average ( Blue Line ). As healthy investors we stayed patient waiting for the market to tell us what it wants to do. Last week, on Tuesday, August 14, the rally attempt failed as we dropped below the low of the first day ( White line ) . Thursday, August 16, it looked as though the markets were going to get punished, when all of the sudden, the markets reversed in a strong way. The S&P regained over 30 points to finish up for the day and close above the previous days close, thus qualifying for a first day rally attempt ( Second yellow circle ). The DOW and Nasdaq followed on Friday, August 17. Now we will wait again for confirmation. Be patient, disciplined, and follow the rules.
Stocks Showing F.I.T. Formations
The following 2 stock picks held up nicley last week as the market sold off, but the healthy investor will be more cautious jumping into the market as it is correcting. Remember most stocks will follow the trend of the market no matter how F.I.T. they are.
* All charts are 3 year time frames with weekly price patterns *
Stock: Koppers Holdings Inc.
Symbol: KOP
F undamentals: 7.1 out of 10
I ndustry: Chemicals - Specialty Rank: 8.6 out of 10
T echnical Pattern: The U Turn
Pivot or Buy Point: $34.90
Stop Loss: $32.46 or 7%
Profit 1: $38.40 or 10%
Profit 2: $41.90 or 20%
Kopper has developed a nice U turn pattern. The left side of the base shows KOP dropping for 3 weeks straight. The volume, however, was just average. KOP then showed great signs of support as it bounced off its 40 week moving average ( Blue line ). In the last month it seems big investors began to jump in to the stock as volume ( blue rectangle ) started to surge on the right side of the base. Last week, it recovered its 10 week moving average ( orange line ) with no problem. KOP is nearing its previous high of $34.80. If KOP can break through this high we will quickly look for the buy point of $34.90 and confirm it with good volume. We would also like the tide of the Market flowing in an upwards direction as well.
Stock: Dealertrack Holdings Inc.
Symbol: TRAK
Fundamentals: 9.9 out of 10
Industry: Computer Software Enterprise Rank: 7.5 out of 10
T echnical Pattern: U Turn
Pivot or Buy Point: $40.74
Stop Loss: $37.89 or 7%
Profit 1: $44.54 or 10%
Profit 2: $48.61 or 20%
We listed TRAK 2 weeks ago in the newsletter. It has yet to break out, but unlike other stocks that have crumbled during the market correction, TRAK has remained F.I.T. . TRAK still maintains its nice U shaped pattern. In addition, we like its nice upwards trend lines, and how it has held nicely above its 10 week moving average. The last 3 weeks, TRAK has had two strong volume up surges versus one weak volume down surge. This is a healthy sign, and why TRAK still deserves its F.I.T. reputation. Now, we will wait for the price to break above its $40.74 buy point on nice volume.
F.I.T. Stocks still Flexing some Muscle
Boston Beer Company ( SAM ) was a stock pick in our August 5th newsletter ( see below ). SAM broke above our buy point of $43.54 on huge volume, August 6, 2007. The next day it hit our first profit target of $47.89. If you did not get out, things then got a little scary as SAM dropped below the buy point 3 days later. Our stop loss price was never hit on SAM, and within the next four trading days we were back above our original buy point. On friday, August 17, SAM gapped up in price and our first target price of $47.89 was easily obtainable. If you decided to stay in monitor the price and volume action of the stock and the market daily, and don't let the profits slip away.
Stock: Boston Beer Company
Symbol: SAM
Fundamentals: 9.0 out of 10
Industry: Beverages-Alcoholic Rank: 8.2 out of 10
Technical Pattern: The U Turn
Pivot or Buy Point: $43.54
Stop Loss: $40.50 or 7%
Profit 1: $47.89 or 10%
Profit 2: $52.24 or 20%
Boston Beer has formed a nice U shape pattern. SAM has spent the past 2 weeks correcting. Last week makes me a little wary as it had above average volume during its sell off. What I do like is how SAM held its 10 week moving average ( orange line ) which is a good sign of support and then last week rebounded off that line. Let us now see if people will buy enough beer to break SAM above its buy point of $43.54 ob good volume.
Please remember to stick with your Invesment business plan, be disciplined, monitor price and volume daily and make money.
Happy and Healthy Investing,
Fitstocks.com