Wolf in Sheep’s Dojis
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End of quarter window dressing or not, it is tough to deny that Monday was as impressive a showing for the bulls as you will see, particularly when you assess the breakout held on the Russell 2000 small cap index. Frankly, there are way too many charts for me to present to you that essentially detail the same scenario–A strong attempt at a breakout from a multi-week consolidation.
Thus, I want to focus on one particular setup this evening in easily one of the hottest sectors in 2012. Biotechnology stocks started off 2012 on a tear, and subsequently gave us the oh-so-pretty high and tight consolidation for nearly five weeks. On Monday, the IBB, ETF for the biotechs, surpassed its 52-week highs, presumably ready to make a valiant attempt at another leg higher.
Indeed, there are quite a few biotechs in my portfolio inside 12631. I can safely say the biotechs, along with the retail/consumer discretionary stocks, are where I have focused most of my portfolio this year. One stock that I am eyeing for a new trade is Nektar Therapeutics. For roughly thirteen months from October 2010 until November 2011, the stock was absolutely decimated, losing about 70% of its value.
Recently, though, the stock has made progress in acting more constructively. Since last November’s low, the stock has carved out higher highs and higher lows on a noticeably improved bullish volume pattern. In addition, the stock has been consolidating over the past three-plus weeks in what is known as a “doji string,” with a series of small-bodied candles, denoting mild indecision. Of equal importance, the doji string has come on benign volume denoting a lack of violent indecision underneath the surface.
As always, context and objectivity are crucial when analyzing the technicals. Here, NKTR has absorbed its recent advance in a unique manner with the doji string, a rare but powerful pattern that looks innocent enough, but is actually something to note. What the doji string denotes, especially one of this length, is a pronounced period of compression where sellers were unable to make any progress at all.
We know that periods of compression on a chart often lead to periods of explosion. As such, Monday’s uptick in buy volume to accompany the attempted breakout should put you on watch for an explosive resolution up and out of the wolf doji string in sheep’s clothing, for a hot stock in a hot sector.
Also note that after-hours weakness in NKTR is likely due to MAPP negative news. I would be looking at the $7.60 breakout level to hold tomorrow, and do not expect the news to destroy the overall pattern.
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Call the Bears “Cat”; Call Them “Kitty CAT”
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Quite a few bears have recently embraced the idea that industrial giant Caterpillar’s short-term weakness is emblematic of slowing global growth. Indeed, the stock has struggled during the entire month of March. Nevertheless, it is important to be cognizant of the fact that conformation bias is one of the bears’ all-time biggest market nemeses.
With that in mind, a look at the weekly chart of Caterpillar reveals that little, if any, technical damage has been sustained by the recent softness. In fact, the proverbial pregnant pause at those 2011 (and all-time) highs can be viewed as entirely expected and even constructive. Volume has tapered off as price is coming to terms with these highs, barely retreating. $86 was a key level a few years back, and the bulls turned that prior resistance into firm support, save last autumn’s violent shakeout. Beyond that, I have doubts about the bear case as long as $100 holds. Also note that price remains firmly above all weekly moving averages.
Caterpillar is putting in its dues right near all-time highs, via consolidating on mild volume. The eventual move through $116 might not happen imminently, but that does not necessarily mean the bears are correct in rejoicing over the slowing kitty-CAT. If anything, a more objective analysis leads one to believe this is nothing more than a mere cat nap.
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Market Strategy and Trading Ideas {Video}
In Warrior Mode
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Old Man Milkshake and Fries Buffett once said that all you really need is one good idea per year in the stock market. Oh yeah? Well, if that’s the case, Warren, then you had better put down Becky right quick and come over to my blog. Over the past few months, I have, in a series of posts, departed my from usual wham-bam-thank-you-ma’am quick breakout setups in high beta stocks in offering fully-loaded analysis of Wal-Mart, Discover Financial Services, and Target.
Wal-Mart is up nicely since I profiled it here during the October bottom and still is preparing for a monthly breakout.
Discover Financial Services has been an absolute monster since I profiled it here, up nearly 40% since that post last December. 12631 members have crushed this trade, including @GYSC16, a successful blogger in his own right. I am still holding a partial position since the mid-$20’s.
Finally, Target is the most recent long-term idea to trigger, up nicely since I profiled it in this post last month. I suspect Target is just getting started, as I am looking for $57 to now hold as support. You can see the monthly chart below, as the breakout is making a valiant attempt to get going.
In sum, I am in warrior mode, and as much as you cutthroat types try to ignore or resist me, you can’t. Over the years, I have developed a broad and loyal readership base. With that success comes the occasional cheap shot artist who would love nothing more than to try to either knock me off or supposedly expose me for being inept. In due time, each of these alleged alpha pups invariably fades away like the true betas they are, not unlike the cocky, all-sizzle-no-steak gamblers I used to send home broke in the Las Vegas desert years ago during the poker boom.
There’s always someone better in life, and guess what? I am that someone.
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Druggies Gotta Drug
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While WAG lags the group, CVS and RAD have emerged as market favorites in the drugstore sector. CVS is a bit of a slow-mover, but RAD has seen much of the hot action recently. Although it is a very low-priced stock, it is worth noting that RAD does trade with tons of volume. So, it is not like we are talking about some illiquid penny stock here.
As you can see below, I believe RAD has been accumulated by large buyers in recent months. While it is pulling in sharply this week, overall the uptrend remains intact. I have no position in this name, but I am started to get interested. For me, the key to finding a trigger is to look for signs that the buyers are looking to reload, yet again.
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