Date: April 13, 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
The Yellow Warning Light is still UP! As we have stated for the past couple of weeks, since the confirmed rally in the major indexes, no real conviction has come forth in the way of strong buy side volume to make this new rally very convincing. Since the confirmation day of March 20, there has been unwillingness from major institutions to pump buy side volume back into the market. That being said, there also has been no big time sell side volume when the market has gone down for the day.
The markets crashed on Friday, when word of GE's first quarter sales and earnings results were below what analsyts had estimated. Much of GE's losses came from its Financial Services branch, which is a large part of GE's business. This news sent more FEAR throughout the Financial Sector. On top of this news, GE lowered its 2nd quarter and full year profit forecast. By the end of the day GE had taken a 13% loss.
Now for the GOOD NEWS! Although GE's earnings were a disappointment and sent the major indexes into a downward spiral, the VOLUME behind such a big drop was very tame and subdued. If we were to just listen to the NEWS or READ the major stock market headlines, it would seem that the bottom dropped out of the market. As healthy investors, we know better, because we spend a few minutes at the end of the day studying the price movements of the markets and individual equities and the volume associated with them. Please remember, when prices drop or rise, the VOLUME behind the move shows us the true conviction of what the Big Money is doing. During Friday's sell off, VOLUME remained rather light.
What does this mean? Well, we must keep a close eye on the market as we come into earnings season. This week many other financial stocks will begin to release their earnings. Many will probably have losses, the question will be whether the stock market and the Big Institutions believe the end is near for these losses and things will begin to pick back up, or whether they believe these losses will continue for some time to come.
Currently, the Big Money seems to be playing it safe. There seems to be indecision on the part of major institutions, as we are seeing no volume kick in to the buy side or the sell side. This same effect has taken place with the F.I.T. Stock recommendations. Many of our F.I.T. Stock selections have broken out from sound base patterns, but the buy side volume has not really kicked in. The market is going to need some type of major catalyst to give it a push one way or another. If volume starts to kick into the downside, remember your stop loss rules, NO QUESTIONS ASKED! At this time you should be in no more than 1 or 2 stocks anyway. If volume pumps into the market to the buy side, follow those stocks showing the most conviction.
IMPORTANT:
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:
First thing we notice is that we are still in a long term downwards trend line. Last week prices neared the 2400 resistance level and sold off. Notice Friday's volume level, indicated by the white oval, it comes in way below Thursday's upside volume level. This is what we like to see, good volume up days, and light volume down days. What is also comforting to notice is that since the big volume confirmation day of March 20, up day volume seems to be heavier than down day volume over the past month. This week it will be important for the NASDAQ NOT to take out its previous low as indicated by the short white horizontal line. If it does we need to be wary of the NASDAQ's last major support area just under 2200.
The DOW JONES 6 month chart:
The DOW JONES exhibits many of the same characteristics as the NASDAQ. A long term downwards trend line, and major resistance that it was unable to break through. One difference between the 2 index charts is the volume associated with Friday's move. Down side volume on the DOW chart is above the previous days volume thus coming in as a distribution day. That being said, this down side volume is somewhat misleading as 321 million shares of it was dedicated to the GE sell off. Once again we must just practice patience and wait for big volume to kick into the buy side to give this new rally some conviction. If it does not, and sellers begin to step in, we should not be hurt that much as we have practiced sound and healthy investment skills by easing into this new market rally a little bit at a time.
Top 10 Industries:
- Oil and Gas - US Exploration
- Steel Producers
- Chemicals - Fertilizers
- Energy - Other
- Machinery-Farm
- Bldg-Residential/Commercial
- Oil Gas and Drilling
- Bldg. AC/Heating
- 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 |
228.6 |
3% |
|
|
6.17 |
Vol. Light |
| RRC |
3/30/2008 |
4/2/2008 |
FB |
65.73 |
66.27 |
1% |
|
|
0.54 |
Vol. Light |
| RIG |
3/23/2008 |
4/4/2008 |
C/H |
145.13 |
145.08 |
0% |
|
|
-0.05 |
Vol.Light |
| SID |
4/6/2008 |
4/8/2008 |
FB |
40.23 |
40.62 |
1% |
|
|
0.39 |
|
The F.I.T. STOCK PLAN
This week we have 1 NEW F.I.T stock 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: Valmont Industries Inc.
Symbol: VMI
Fundamentals: 9.8 out of 10
Industry: Metal Fabrication Industry Strength: 5 Metals/ Steels
Technical Pattern: U Turn Avg. Volume: 354,503
Pivot or Buy Point: $99.23
Stop Loss: $92.29 or 7%
Profit 1: $109.15 or 10%
Profit 2: $119.07 or 20%
Valmont manufactures fabricated metal products and metal concrete pole and tower structures for electrical transmission. VMI is now 14 weeks into building a Uturn pattern. As a base pattern starts to build you want to see several weeks of accumulation in the pattern. This is what we love about the VMI chart; it has 5 weeks of tremendous accumulation as it works its way up to its previous high (white oval). VMI reports its next earnings April 18, so it may be quite this week until Friday. If VMI can break to new highs, look to get in at $99.23 on confirmed volume.
F.I.T. STOCKS STILL TO WATCH:
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: $55.27 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.
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