Date: April 6, 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 in Confirmed Rally, but invest with Caution: Yellow Light
It has been a couple of weeks now since the markets confirmed their new rally, however we still have our Yellow Light warning up because we would like to see some stronger conviction behind the new rally move. There are a few very positive signs in the markets right now. The first is that the Nasdaq finished with its biggest weekly gain for the year with a 4.9% increase. The DOW and S&P 500 also had a solid week with a 3.2% gain and 4.2% gain respectively. The second positive sign is that the markets seem to be shrugging off bad news. This week we had news that the unemployment rate increased from 4.8% to 5.1%, which was the highest reading since September 2005. On Friday, before the opening bell, the markets seemed resilient to the fact that the economy lost 80,000 jobs. The third bit of positive news is that leading stocks are starting to break out of sound base patterns on healthy volume.
Volume allows us to measure the health of price movement, and this is the biggest concern we have in the markets right now. Volume has been very subdued since the new rally confirmed on March 20. For this new rally to continue we are going to have to see the Big Money getting involved. It could be the Big Investors are on the sidelines waiting to see how this new round of earnings season will progress. If they like what they are hearing they may begin to start buying up more leading equities for their funds, which would pump volume into the major indexes. It could be they are holding on a bit longer for the recession fears to die down. Whatever the case, at some point we want to see big buy side volume pumping into the markets, and leading stocks to give this new rally some strong conviction. Until then let's remain still a little cautious as we gently start to re-enter into high quality growth stocks.
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 FLOW 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:
Last week's newsletter we talked about the NASDAQ breaking above its downwards sloping trend line on good volume. This downwards trend line was acting as a strong resistance point as prices on the NASDAQ hit this resistance level about 7 different times. After prices break above resistance they tend to come back and test this previous level. If prices can then hold above this old resistance level, than old resistance becomes new support. #1 shows how this new support level held up last week. #2 shows us how unimpressive the volume has been so far since this new rally began. This week we would really like to see big volume kick in to the buy side ands really give this new rally some legs. Once again let the market dictate what it wants to do, we merely just follow the markets lead.
The S&P 500 6 month chart:
The S&P 500 has also broken above its downwards sloping resistance line. What is a concern for the S&P next week is how it will react as it challenges some significant horizontal resistance at the 1400 level (indicated by the red line). For this new rally to get some wind behind it, it would be rather significant if the S&P could break through this resistance in a big way. If it cannot, prices in the S&P could become range bound in the 1260-1400 level as big money tries to figure out how long this recession will last. If it can break through this resistance, we believe that the Big Money feels within the next 6-10 months the economy will begin to grow again as the markets tend to look 6-10 months ahead. Again be patient and let the markets lead the way in the great stock market dance.
Top 10 Industries:
- Steel Producers
- Oil and Gas - US Exploration
- Machinery-Farm
- Bldg-Residential/Commercial
- Chemicals - Fertilizers
- Energy - Other
- Bldg. AC/Heating
- Oil Gas and Drilling
- Oil and Gas US Royalty
- Transportation Rail
F.I.T. Stock Break Outs
| Symbol |
Newsletter |
Breakout |
Base |
Buy |
Closing |
% |
Exit |
Exit |
Profit/ |
Notes |
| |
Date |
Date |
Pattern |
Point |
Price |
Change |
Date |
Price |
Loss |
|
| MA |
3/23/2008 |
4/1/2008 |
C/H |
222.43 |
226.57 |
2% |
|
|
4.14 |
Vol. Light |
| RRC |
3/30/2008 |
4/2/2008 |
FB |
65.73 |
66.99 |
2% |
|
|
1.26 |
Vol. Light |
| RIG |
3/23/2008 |
4/4/2008 |
C/H |
145.13 |
143.54 |
-1% |
|
|
-1.59 |
Vol.Light |
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: Comphanhia Sider ADS
Symbol: SID
Fundamentals: 9.8 out of 10
Industry: Steel and Iron Industry Strength: 1 Steel Producers
Technical Pattern: FLAT BASE Avg. Volume: 4,078,110
Pivot or Buy Point: $40.23
Stop Loss: $37.42 or 7%
Profit 1: $44.25 or 10%
Profit 2: $48.27 or 20%
SID is part of the number 1 industry group Steel and Iron. The Brazilian company produces galvanized, hot and cold rolled and tin mill steel products. Last Quarters earnings popped up 640% and an increase in sales of 40%. SID currently rest in a 7 week flat base. The company also sports a solid uptrend line and has just started to bounce off of this support line. Aggressive investors could enter into SID now. If you want to wait for SID to prove itself a little bit more enter in at $40.23 as the stocks pushes past its previous highs. Always confirm with good volume.
Stock: GMX Resources Inc.
Symbol: GMXR
Fundamentals: 9.8 out of 10
Industry: Oil Gas - US Exploration Industry Strength: 2
Technical Pattern: U Turn Avg. Volume: 289,600
Pivot or Buy Point: $40.23
Stop Loss: $37.42 or 7%
Profit 1: $44.25 or 10%
Profit 2: $48.27 or 20%
GMXR rest in the number 2 industry, US Oil and Gas Exploration. The company engages in the exploration and production of Oil and Natural Gas in LA., NM, and TX. Last quarter earnings were up 155% and sales up 106%. Currently, GMXR is in the process of building its U turn base pattern. Many times this type of base pattern will stall out and form a Cup with Handle pattern. However if this market really begins to move we must be prepared. If GMXR burst above the $40.23 buy point on huge volume jump on in. Then use some of your profits to pay for the gas at the pumps.
Stock: DRS Technologies
Symbol: DRS
Fundamentals: 9.7 out of 10
Industry: Electronic Military Systems Industry Strength: 34
Technical Pattern: Cup with Handle Avg. Volume: 551,300
Pivot or Buy Point: $59.43
Stop Loss: $45.27 or 7%
Profit 1: $65.37 or 10%
Profit 2: $71.31 or 20%
DRS manufactures thermal imaging, sensor, power, combat support, tactical and training systems for military defense agencies. Earnings were up last quarter 38% and sales +23%. The beauty of this stock is in the chart pattern. DRS has built a wonderful 11 week cup shaped base with a 5 week handle that looks ready to explode into new price highs. Notice in the cup part of the base how the big green volume bars outnumber the red ones. This is a strong sign of support from institutional buyers. Now we must wait for DRS to break above the high point of the Handle on big volume. Buy Point $59.43. Stay alert as we are only .49 cents away from the buy point.
Stock: Monsanto Co.
Symbol: MON
Fundamentals: 9.9 out of 10
Industry: Agricultural Operations Industry Strength: 24
Technical Pattern: Double Bottom Avg. Volume: 7,796,000
Pivot or Buy Point: $123.93
Stop Loss: $115.26 or 7%
Profit 1: $136.33 or 10%
Profit 2: $148.73 or 20%
Monsanto manufactures corn and other crop seeds and crop protection products for growers worldwide and if you follow commodity prices you know they have been skyrocketing, which spells profit for Monsanto. Last year and into this year agricultural stocks have been flying with the push to green energy and Ethanol. MON has staged a perfect Double Bottom pattern and looks ready to jump past its buy point, which is the high price of the middle leg of the "W". If MON breaks above the middle leg of the "W" our entry price will be $123.93. Once again confirm with strong buy side 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