Date: March 30, 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, however we still have the WARNING YELLOW LIGHT UP. The past week consisted of a strong Monday, a resilient Tuesday, an indecisive Wednesday, a distribution day on Thursday (a day when the markets sell off on higher volume than the previous days volume), and a light volume sell off on Friday. After the follow through day of March 20, we would like to see a whole lot more conviction behind the markets and leading stocks. Conviction would mean strong price moves up on big volume. This lets us know that the BIG MONEY is starting to buy up stocks once again and add them to their portfolios. Instead what we got was more economic jitters over where this economy is heading. The consumer spending report did not bode well on Wall Street and Retail Stocks got slammed because of it. Financial stocks also got hit pretty hard and if this market goes back into a correction we are going to show you a fantastic way to make money off these financial stocks.
As a little homework and to make sure you are reading this newsletter take a look at the 6 month charts with daily time frame of these financial stocks: BAC, C, GS, LEH, MER, MS, WB, and FITB. Notice the perfect downtrend in these stocks. Also take a look at the Electronic Traded Fund XLF which buys a basket of these financial stocks. Finally, take a look at the Electronic Traded Fund SKF which runs exactly reciprocal of XLF. This is because this is an ETF that SELLS or SHORTS a basket of these same Financial Stocks but you can buy it just like a stock. You could not dream up more predictable charts than these. It is important to mention this information because Healthy Investors should learn to make money in UP and DOWN Markets if you feel comfortable enough to do so.
If you are strictly a buyer in stocks, this week we must look for more positive signs from the follow through. This would be for the markets to head up in price in strong volume. If the markets decide to have more distribution days, 3 or 4 more of the heavy sell off days could send us right back into the correction, and mark the follow through as a failure.
As this market is still pretty tricky it is best that you enter into stock trades a little at a time. Think of yourself as a coach getting ready to go to the draft. We are going to draft one player or STOCK at a time and if they play well and continue to shine we will add another fundamentally sound player. If the market continues to rise and our leading stocks are doing well we will continue to build our team until we have the portfolio we want.
If the market starts to sell off again and our player (STOCK) does not perform to its potential we cut them from the team with our 7% loss with no exceptions. The KEY to becoming a successful investor is to follow the FLOWE of the markets not try to fight them, which tends to be most people's nature. Remember, we let the markets tell us where they want to go, we do not try to predict where they will go.
Let us take a look at the 6 month NASDAQ chart:
So the NASDAQ popped up nicely on Monday with huge volume making it appear as though the DOW's follow through day confirmation was for real. Tuesday the NASDAQ showed some resilience as it dropped to its 50 day moving average and bounced nicely up from there. Wednesday was a quite day, but notice the distribution day on Thursday. Look how the volume swelled above the volume of the previous day (white Oval). Some good news we need to keep an eye on is the fact that the NASDAQ was able to break above its down wards sloping resistance line on big volume (white line). Prices now have dipped back down to this trend line and we must wait to see if this old resistance becomes new support for the NASDAQ. If the NASDAQ can maintain this new support line it would be a very positive sign. Let's watch and see as the story unfolds next week.
Top 10 Industries:
- Oil and Gas - US Exploration
- Steel Producers
- Bldg-Residential/Commercial
- Machinery-Farm
- Chemicals - Fertilizers
- Oil and Gas-US Royalty
- Transportation Rail
- Metal Ores-Gold/Silver
- Oil Gas and Drilling
- Bldg. AC/Heating
The F.I.T. STOCK PLAN
This week we have 2 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: Range Res Corp.
Symbol: RRC
Fundamentals: 9.9 out of 10
Industry: Oil and Gas US Exploration Sector Strength: 1 Energy
Technical Pattern: FLAT BASE Avg. Volume: 2,402,060
Pivot or Buy Point: $65.73
Stop Loss: $61.13 or 7%
Profit 1: $72.30 or 10%
Profit 2: $78.87 or 20%
Since we are in a confirmed rally, but still not sure how strong the rally is, we want to bring out a STAR player. Range Resources sits in the #1 industry of OIL and Gas US Exploration and the #1 Sector of Energy. RRC's quarterly earnings have been on a steady increase for the past 4 quarters. The stock currently is building a 7 week Flat Base and looks ready to bust above its previous high of $65.53. Volume has really lightened up the past 3 weeks. If RRC can break above the resistance of its previous high look to get involved at $65.73 and as always confirm with strong volume.
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 is a pick from last week, but is still holding up VERY strong. 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 2 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.
LAST WEEKS F.I.T. STOCKS BREAK OUTS:
Last week MasterCard hit our buy point of $222.43, but volume did not really back the move up.
The good news is that Fundamentally MasterCard is a very sound stock. The bad news is that no matter how good a stock is fundamentally, it still needs to perform, and to perform the Big Money needs to get involved. As you can see above, MasterCard broke above the suggested buy point, but on very average volume. If you have entered into this stock watch it very closely. The stop loss was $206.86, but if volume doesn't kick in soon and the financials continue to take a beating don't be afraid to BAIL sooner. On the other hand, although volume was just average during the breakout, since then, when MasterCard has been selling off or prices are declining, the volume has been very WEAK. This is a positive sign. Remember we always want to see Big Volume Up Days, and Weak volume Down Days. With these weak volume down days it tells us at this point the BIG MONEY is also waiting to see what this market wants to do.
The KEY here is to monitor MasterCard very closely over the next couple of days or weeks to see which way the volume is going to kick in. Follow your Investment Plan Rules without any EXCEPTIONS.
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