On Tuesday, for the first time in awhile, the financial issues jumped into the drivers seat on a rally. Indexes ended the day much higher across the board. The Nasdaq Composite jumped 83.65 points (a gain of 3.67%) and closed at 2362.75. The more broadly based S&P500 rose 47.48 points (3.59%), closing at 1370.18, while the Small Cap S&P600 Index rallied a strong 3.27%. Not only did we see large gains across the board, we saw some leadership names appear, which has been lacking on prior rally attempts, and we saw volume jump across the board. This should be seen as nothing but a bullish follow through day to the upside. It's important to note that no significant rally has ever taken place with out a follow through day, although a follow through day in and of itself does not always lead to a sustained rally. As we have seen over the last several weeks upside follow through days have quickly been followed by distribution on heavy volume, so, I'd say caution is still somewhat in order, but I will certainly not be sitting 70 to 90% in cash anymore. All in all, I must say it's not a bad start to the second quarter, especially after the drubbings of the first. Today I started building positions in LNN (I wish volume had been better), ISRG which gave a great intraday entry point that I will cover in another article this evening, TUP (again I wish it had more volume behind it, but I'll also be doing an article on this trade for your educational enjoyments), OI and CSX. I've owned AMPH for some time, but it's a fairly low volume name so I have not followed it closely here. It would appear that for the time being we are âout of the woodsâ so to speak in terms of the downside in the market. Still play a bit cautiously though because if this is truly âtheâ bottom there will be plenty of opportunities to get on board the trend.
Yesterday the market did a pretty good job of digesting the gains from the large moves that occurred on Wednesday. There was not a whole lot of action, though the general trend was lower. The NASDAQ lost 1.35 points to 2361.4, the S&P500 was off 2.65 points to 1367.53 while the Dow Jones Industrials lost 45.36 points and closed at 12,609. Volume was light across the board, which is what you want to see in an uptrend. The ideal pattern is up days on heavier volume and down days on lighter volume. So long as we see this I will stay cautiously optimistic about the market going forward.
Attatched you will find a chart of Lindsay Corp which trades on the NYSE under the ticker Symbol LNN. Lindsey manufactures self propelled irrigation systems for the global agriculture industry. This is a group that, obviously, as world populations continue to grow, and the ranks of the middle class explode, is a very in depend group and area. When I look for a stock to buy or sell I always start off with a chart. For the first six and a half years of my trading career I was a 100% technical trader, and while I now incorperate a lot of fundamental analysis (Anthony) into what I do, T/A remains by far my strongest skill. Each evening I will download TC2000 data onto my computer and scan through the 2000/2500 most actively traded issues of the day. This gives me a good broad look at the market, something you wont get looking at only a few setup based scanned patterns, or even by looking at the indexes themselves. What I'm always looking for is relative strength in an upmarket and relative weakness in a down market. Once I have isolated that I start watching for patterns to show up that give me clues about what a stock might be doing. We can see here on LNN that on March 19th it had a HUGE up gap. That gap was not filled, which is very important. Most gaps try to fill in, those that do not often represent the very strongest names in the market. A few days after its large gap LNN did what most stocks will do in this type of situation and it rested. Stocks can rest in a variety of ways, they can trade sideways, or slightly down (such as LNN did) forming a flag. This high level and very tight flag that LNN formed is one of the very strongest patterns you are likely to see. After I look at the chart I want to have a basic look at the fundamentals. In this case I see that LNN is part of an industry that is having a global expansion due to fundamental shifts in world population trends that are likely to continue. The stock has had solid earnings and revenue growth going back the last three quarters. The most recent qtr saw EPS increase by 276%, which is well above the 25% I like to see. Not only is EPS growing nicely but this is a company with very little debt, decent cashflow and a respectable 12% return on Equity. So, when I combine these things with the technical I have a picture I like IF the stock confirms my opinion is a valid one. For me the only way for a stock to prove its validity is to trigger an entry. In the case of LNN I had my buy order placed above 103.50 and had an average entry of 104.11. In more "ordinary" market conditions I'd be inclined to give a stock like this a lot of room to move around once I got in, but in the case of LNN that was not the case. My first concern came about on the very day I bought the stock in that volume was not all that heavy. Yesterday the stock started off very strong, but pretty quickly turned to the downside and triggered my trialing stop loss around 109.50.