CapeFear IBD: 2008

IBD Chart Criteria

KEY WORDS TO SEARCH (ctrl/f) ON: climax, eight weeks, flat, double, tight, counting bases, 10-week line, saucer, ascending, stock offerings, stock split, cup-with-handle, base-on-base, ideal base, P/E, sell indicator, breakout, buy point, weak group, distribution, pullback, three-weeks-tight,, tight flag, cash flow, follow-through, correction, 10-week pullback, P/E expansion, cup-with-high-handle, ascending, upper channel, (high, tight flag), P/E Expansion

11/03/08 (Mon) Investor’s Corner " Look For Key Characteristics In Base's Handle”
Author: JOANNE VON ALROTH Section: Investor's Corner Date: 11/3/2008

Recognizing a proper handle in a base can make the difference between a successful stock purchase and a flop. A handle is a moderate, steady correction that forms in the upper half of a base, before the stock races to new highs. After a stock rallies and forms the right side of a cup, investors will take some profits. It shows up as a steady downward drift of at least five days on a chart, though it could last for several weeks or months. To check if you're seeing a proper handle, add the base's high and low, then divide by two. Repeat the procedure with what you think is the handle. If the answer from the handle's equation is larger than the base's, you've got a high-enough handle. Handles should form above the stock's 200-day moving average. During the drift, volume should remain relatively light. That shows that while casual investors might be cashing in, the professionals - mutual funds, banks, pension funds - are holding on, and the stock has growth potential. This is called a shakeout, and can foreshadow the stock's breakout. Handles should correct about 5% to 15%. In a tough market like today's, bigger corrections of 20% to 30% can be found. Lows in the handle area shouldn't drift up. That signals a weak handle. Nor should you see wild price action. That can mean buyers and sellers aren't sure which way they want to go with the stock. If the handle is proper, it's ready for a breakout. The buy point is 10 cents above the highest point in the handle. Volume is crucial here. It should be at least 50% above average when the stock breaks out; the more, the better. It's a sign the big investors are buying. CF Industries started forming a base in July 2007. The fertilizer company made up most of its correction, then formed a handle for eight days. The stock drifted downward gently, showing tight price movements. Volume remained light as the handle formed, another positive characteristic. On Sept. 18, the stock broke out as it passed a 66.70 buy point. Volume was light that session - not an ideal situation. However, volume sometimes takes a few days to move into a breakout. A few days later, trading in CF shares surged. In the stock's weekly chart, volume on the breakout week was abundant.

03/10/08 (Mon) Daily Stock Analysis "Companhia Siderurgica Nacional (SID”
Three weeks later, the stock gapped above an upper channel line that dates back to November 2006 (Point 5). This action tells you that the stock is extended above its long-term price trend. For the line to be valid, it needs to be drawn over a period of at least 18 weeks – the longer the line, the more reliable it becomes. The upper-channel line should also connect at least three points, the more the better. Often, other sell signals coincide with the breach of the upper channel line.

03/07/08 (Fri) IBD’s 20 Rules for Investment Success "Follow Selling Rules On When To Sell And Take Profit”
Remember this mantra for selling: "Bulls make money and bears make money, but pigs get slaughtered."
Sell early to lock in gains. It's better to leave money on the table than to get out late.
When a stock goes up 20% or more in the first three weeks after a breakout, you should hold it for at least eight weeks. Such stocks often go on to become the market's biggest winners.
Many stocks aren't quite so powerful. They may climb 20% to 25% in the span of a few weeks or months, then stall. They may also form a base, dipping into a fresh correction. Be ready to take profits when such stocks flash sell signals. Not every stock needs to be a home run. Bagging your fair share of singles and doubles by selling for decent profits will pay off in the long run.
Here are some other key sell rules:
• Be wary of big price declines in heavy trade. That's a sign that big-money investors are dumping shares. Sharp drops through key support levels like the 50-day moving average also suggest institutional selling.
• Watch out for climax tops. A climax top occurs when a stock that already has had a huge run-up suddenly races higher and faster than it ever has before. Wide price swings, exhaustion gaps and sharp reversals typify the action of a climax run, indicating the stock likely is overheating and headed for a fall.
• New highs in low volume are a bad sign. Sell when a stock hits new highs in low volume.
A look at Google's (GOOG) weekly and daily charts from late 2005 and early 2006 shows the danger of new highs in lackluster trade.
Google cleared a cup-with-high-handle base during the week ended Oct. 21, 2005. The Internet search giant rose 25% in four weeks from its 321.38 buy point (10 cents above the high of the handle from the week of Oct. 7).
The first sell signal appeared during the weeks of Nov. 18 and Nov. 25, as the stock hit new highs on weak volume. This shows institutional buyers souring on the stock. Two weeks of heavy selling ensued.
The second sign Google was topping came when it closed in the low end of its price range on Dec. 19 and Dec. 21, with heavy volume accompanying those bearish reversals.
A third sell signal came when the stock sliced its 10-week moving average on big volume the weeks of Jan. 20 and Feb. 3. Google and Yahoo (YHOO) then released disappointing earnings. Google eventually righted itself, but it took months for it to stage another meaningful breakout.

11/28/07 (Tue) Investor’s Corner "Use P/E Ratios To Set Sell-Price Targets”
….you can use the P/E ratio to project a stock's price down the road. Here's how it works. Let's take Baidu.com, the Chinese search engine that turned out to be one of the market's big leaders until the correction took hold several weeks ago. Baidu.com broke out of a cup-with-handle base above a 92.20 buy point a little more than a year ago . Maybe you saw it at the time. Maybe you were scared off by the P/E ratio, which was a dizzying 71. There must be something cheaper, you may have thought. Now turn it on its head. Don't look backward, look forward. Multiply the P/E ratio at the stock's buy point when it broke out of its base times 2.3. Why this number?

Because research shows winning stocks generally end their major runs when their P/E's have expanded, on average, 130% from their breakouts. In this case, you could have multiplied that crazy-sounding P/E of 71 by 2.3, resulting in 163.3. That's your target P/E ratio. In fact, Baidu.com neared that P/E level just a few weeks ago. Its P/E ratio hit 173 the week of Nov. 2, right as the stock peaked. You can take this exercise a bit further and calculate a target price. Multiply the target P/E (163) times the analyst consensus estimate for two years out. In Baidu.com's case, analysts see $4.04 a share for 2008. (You can find analyst consensus estimates at Daily Graphs Online, a sister product of IBD.) The result: 658.52. Baidu.com peaked at 429 three weeks ago, so the calculation suggests the stock may yet form a new base and make new gains. One more point about using P/E expansion: This method should be applied from the moment a stock breaks out of a first-stage base, not later-stage patterns. Also, research found that the average P/E expansion varied among market capitalizations. For small-cap leaders, it was 142% over 52 weeks on average. For large-caps, it was 98% over 117 weeks.

11/27/07 (Tue) Investor’s Corner "Stocks Offer Second And Third Chances”
Where's the buy point on a 10-week pullback?
Generally, you can buy as soon as you see the stock rally from its 10-week line. Again, strong volume gives such a move more conviction.
Also, you can set a precise buy point.
Find the most recent high before the retreat, then add the 0.10. As with other buy points, you can buy shares as long as the stock is within 5% of the buy point.
That rise past the most recent high can often take a number of days. That allows investors plenty of time to pull the trigger.

11/05/07 (Mon) Daily Stock Analysis "Noble Energy.(NE)”
Base correction for the biggest winners is less than 35% [can be as much as 50% (? verify) in a bear market].
Calculation to determine that in a cup with handle base the handle forms in the upper half of the pattern: Handle price midpoint [(H-L)/2] >Overall base price midpoint [(H-L)/2].

11/01/07 (Thur) Investor’s Corner "Climax Tops Can Spell Doom For Leaders”
A climax run is an insidious sell signal because it occurs as a stock makes its most dramatic gains.
So, learn to recognize the difference between a solid gain and a climax run by checking for the signs:
When a stock is extended from a proper base and notches its biggest percentage gain since the start of the move. After a long run, a stock opens above the prior day's high. Such "exhaustion gaps" are usually a sign of strength and they are welcomed at the start of a breakout, but not at the latter stages of the game. Sometimes there may be a series of these before a stock finally caves in. A stock goes straight up for seven or eight sessions in a row. The difference between the week's high and low prices is the biggest since the start of the move. After a substantial advance, a stock's volume increases but its price doesn't move up much for several days. This is called churning. Considering selling if a stock runs up 25% to 50% following the news of a split. Too many splits creates an oversupply of shares. A stock breaks above its upper channel line drawn over the highs over several months after the stock has made a big run-up. The price is 70% to 100% or more stretched above its 200-day moving average. Few stocks can maintain that kind of momentum.

10/31/07 (Wed) Glossary "Flat Base”
This is commonly seen after a stock has come out of a cup-with-handle or double-bottom base. The stock’s price goes sideways in a tight range for at least 5 weeks and corrects 8% to 15% or so.

10/25/07 (Thur) Investor’s Corner "Several Pullbacks May Be Ascending Base”
Most chart bases involve a significant price correction, but the ascending base is unlike the rest. This unusual pattern consists of three pullbacks, each a bit higher than the prior. In other words, each low is higher than the prior low and each high is higher than the prior high, forming a staircase-like action. Each of the pullbacks is 10% to 20% deep. These may coincide with touches of the 10-week moving average, but not always. As with all bases, the ascending base forms after the high of the first pullback is at least 20% above the prior base's buy point. Ascending bases tend to form while the general market is weak. The escalating action reflects a stock that's able to make some progress despite broad market weakness. The buy point is set by adding 10 cents to the highest price level of the third and final pullback. The entire pattern usually spans nine to 16 weeks. Watch the stock soar past the buy point as volume jumps. That's a breakout from an ascending base. 10/23/07 (Tue) Investor’s Corner "Three-Weeks-Tight May Offer 2nd Chance”
If you missed a breakout from a base, don't chase it. Instead, wait for the stock to offer a secondary buying opportunity such as a three-weeks-tight pattern. As the name implies, this pattern needs three weeks to take shape. Over that time, the stock's weekly closes are quite near each other, within 1%. Although not as common as pullbacks to the 10-week moving averages - another follow-on buy point - the three-weeks-tight pattern has been known to give leading stocks a second wind. After breaking out, a stock will often settle into a consolidation, retrace a portion of the prior move and go on to shape a new base. But a few refuse to give up much ground and trade in narrow ranges around former highs. Volume is often light during this time, but don't let that fool you. Those tight closes are an indication that institutional investors are supporting the stock. To locate the buy point of this pattern, simply find the highest level of the three-weeks-tight and add 0.10 to that. Remember, this is a follow-on buy point, which can be used to start a new position or add to an existing one. If you add on, it's best to buy a smaller number of shares than in your first purchase. This formation tends to work best with the market's very best leaders, those with the strongest fundamentals and price performance.

10/04/07 (Thur) Inside Investor’s.com "Make Screen Of The Day A Part Of Your Daily Stock Routine”
Now that the market's in a confirmed uptrend, the time is right to get into stocks. Most big winners will break out of bases within 13 weeks after a follow-through, which was Aug. 29.

09/28/07 (Fri) Investor’s Corner "Cash Flow: Another Key Financial Gauge”
When scouting growth stocks, you want to see not only positive cash flows in a stock, but rising cash flows as well.This shows a company is managing its cash efficiently, and it has enough money on hand to invest in the business or buy back its own shares.As a general rule, a growth stock's cash flow per share should be at least 20% above its most recent fiscal year's earnings per share.So if a company earned $1 a share in fiscal '06, you would want to see cash flow per share of at least $1.20.It also is important to examine cash flow from an industry-specific standpoint. When comparing figures, see how your company stacks up against its peers.Generally, try to pick the company with the best operating cash flow vs. earnings per share in its group.

09/25/07 (Tue) Investor’s Corner "After Follow-Through, Leaders In Bloom Time”
In the first four weeks after a follow-through, the leaders of the confirmed new uptrend break out of bases or clear other substantial buy points. Other leaders continue to emerge for a while. In all, this blooming period for new leaders lasts about 13 weeks from the follow-through.

08/24/07 (fRI) IBD Glossary " Three-weeks-tight”
A chart pattern in which the stock’s weekly closing price is little changed for three weeks. Each week’s close should be no more than 1% different from the week before. This pattern tends to take shape weeks or months after a stock has broken out of a base. The buy point is determined by adding 10 cents to the highest point in the pattern. Considered a buy opportunity, the three-weeks-tight pattern trends to be most effective when it forms in charts of the market’s best leading stocks.

08/20/07 (Mon) Investor’s Corner "Got A Perky Upstart? Try Holding On For More”
Usually, one starts to look for the exits after a stock advances 20% or 25%.

08/20/07 (Mon) Winning Ways "The High, Tight Flag: Rarely Seen Pattern, But Run-Ups Are Big "
The high, tight flag is the rarest basing pattern of all.
The first stage of a high, tight flag is a jump of 100% or more in four to eight weeks. That's the high part.
Stage 2 is a correction of three or four weeks. The stock should retreat no more than 20%. That's the flag's tight pennant. Example of BO from this rare pattern is TASR on January 9, 2004 (pivot =93.60 pre 12:1 splits).
Stage 3 is a burst from that pennant. Such a burst can lead to gains of 200% or more, O'Neil says.

07/09/07 Investor’s Corner "Rare High, Tight Flag Offers Investors Opportunity For High Returns”
When stocks create proper bases and break out of them, they provide investors with sound buying opportunities. Common patterns include the cup with handle, flat base and double bottom. Less common are the saucer and ascending bases. The rarest of all is the high, tight flag. If you're lucky, you'll spot one or two of those in a bull market. They provide an opportunity for serious gains if formed correctly - and you recognize them properly. The stock will usually surge 100% to 120% in a short period of time, four to eight weeks. This forms the pole of the flag. It will then correct no more than 10% to 20% in three to five weeks, tracing the flag portion. The ideal buy point is at the peak of the flag plus 10 cents. Investors can make 200% on a stock that surges from such a pattern, which acts as a brief pause amid a huge advance. But it's also a difficult formation to interpret correctly. Syntex is a classic example of a high, tight flag, even though it happened way back in 1963. More recently, Taser Internationaldisplayed similar characteristics in 2004. Syntex, which developed the birth-control pill, soared 137% in 12 weeks to its peak of 32.75 in June 1963. This formed the pole portion. Volume grew substantially during this run-up. The stock then pulled back 18%, forming the pole of the pattern. The total pullback lasted five weeks, but the stock was ready to break out of it any minute. The buy point became the peak of 32.75 plus 10 cents, or 32.85. As the stock finally blasted past the buy point, volume picked up again. Syntex had a phenomenal run. The stock skyrocketed 480% in a little over six months, to its ultimate peak of 190.50. By then the company was exhibiting signs of overheating, resulting in a climax run. But investors who held on for the run walked away with huge gains.

05/16/07 (Wed) Investor’s Corner "Got A Perky Upstart? Try Holding On For More”
Usually, one starts to look for the exits after a stock advances 20% or 25%.
That's fine unless the stock touches off a rule that would guide you to hold on all the more firmly.
The rule: If a stock gains 20% or more within three weeks of its breakout, hold the stock for at least eight weeks.

05/09/07 (Wed) Investor’s Corner "Base-On-Base Pattern Can Yield Big Gains”
Sometimes a stock may stall after breaking out, often due to a choppy market. A base-on-base pattern occurs if the stock rises less than 20% from the breakout before pausing to start another base.

The base-on-base can be formed by a variety of patterns. For instance, a stock could build a flat base on top of a cup-with-handle. Or a cup-without-handle might follow another cup-without-handle. Just be sure both bases display the sound price and volume action you want in a winning stock. It's also important to note that a base-on-base pattern can consist of more than two bases.

05/11/07 (Fri) Investor’s Corner "Sound Cup-With-Handles Not Always Perfect”
The cup-with-handle base is the most oft-used tool on the CAN SLIM workbench. For many decades this pattern has prefaced many of the biggest run-ups by winning stocks.

The pattern is a kind of snail's trail left by institutional investors. It starts when a stock's price begins to correct, generally when larger investors cash out. The base technically begins on the first down week following a run-up of at least 20% from a prior breakout. The bases are visible on either daily or weekly charts. Several basic elements separate healthy cup-with-handle formations from weak ones. Measure the price correction from the intraday high price of the base's left rim to the cup's nadir, its lowest intraday price. Drops for this shape are at least 20%. Corrections deeper than 35% are more prone to problems. But in bear markets, the dip may be as much as 50% and still presage a promising breakout. That's because growth stocks tend to decline 1 1/2 to 2 1/2 times more than the broad market in a correction. In either case, the entire base must be at least seven weeks long. This is measured from the first week of the correction to the week before the breakout. While seven weeks is the minimum, these bases can extend to a year or more. There are many pinup-perfect examples of cup-with-handle bases. In reality, many aren't so pretty.

04/18/07 (Wed) Investor’s Corner " Saucer Bases Can Launch Powerful Run-Ups”
A typical saucer pattern corrects 12% to 20% from peak to trough. That's shallower than is the case in cup bases, which can correct as much as 35%, or up to 50% in a choppy market. The shallower correction makes the pattern resemble a saucer, rather than a cup.Look at a saucer base in the same way you would any other base. You should see more volume during up weeks than down weeks. If the base has a handle, it should drift lower for at least a week, in light trade.

03/23/07 (Fri) Investor’s Corner " Ascending Base Can Form In Corrections”
During a market correction, many stocks struggle to keep their heads above water. But there are always a few strong leaders trying to buck the trend.In doing so, they can sometimes form what's called an ascending base. This pattern usually emerges a few weeks to a few months after a stock's breakout from a prior base.As the general market loses ground, the stock hits resistance and enters a mild correction. This is often in the form of a pullback to the 10-week moving average. Since it's a new base, that correction should start at least 20% past the prior base's buy point.The stock will then stage three shallow pullbacks, each with a 10% to 20% decline.The pattern typically spans a period of nine to 16 weeks. Each top should be higher than the prior top, and each low should be higher than the prior low.The buy point is then found by adding 10 cents to the highest price level of the third and final pullback. Look for a jump in brisk volume when the stock clears that buy point.Because ascending bases are part of a larger climb, they are tough to spot, as they usually look like a series of unremarkable pullbacks.

Example: Titanium Metals (TIE) broke out of a five-week flat base in September 2005.The stock then rallied 126% from its split-adjusted buy point of 8.77 to the first top of the ensuing ascending base.Titanium then staged three pullbacks to its 10-week moving average. The stock's low and high were each higher than the previous low and high, a bullish sign.The buy point was determined by adding 10 cents to the third top of 22.25. In March '06, the stock blasted out of its base, clearing that buy point on heavy volume.In the six weeks that followed, Titanium bolted another 113% to its peak in May 2006.As the general market started correcting, so did the stock. Those who bought at the right time and followed sound sell rules, however, bagged large gains on the stock.

03/14/07 (Wed) Investor’s Corner " Wait For Follow-Through Day Before Buying”
That signal is a follow-through day, a big gain by one of the major indexes - the Nasdaq, S&P 500, New York composite or Dow industrials - of about 1.7% or more. Volume on a follow-through day must be higher than in the previous session. This big gain on an increase of volume must come during an attempted rally. Simply put, any up day or positive reversal following a fresh low counts as Day 1 of the rally try. Days 2 and 3 of the attempt aren't all that important. As long as the market doesn't show significant distribution during this time, the count remains intact. IBD studies of successful market rallies show that a valid follow-through should occur on Day 4 or later of the count. If the major indexes undercut the low marked on Day 1, the count begins anew.

The last time we saw a follow-through was Aug. 15. The Nasdaq soared 2.2% in Day 21 of the attempted rally. Volume totaled 1.8 billion shares, higher than the previous day's total of 1.5 billion. Remember, volume on a follow-through day must rise from the previous session. It doesn't have to break any records, or even be above average.

03/08/07 (Mon) Investor’s Corner " Beware Of Low Volume At The Breakout”
Keep in mind, leaders that vault 20% or higher on big trade in the first three weeks after the breakout may be worth holding onto for another eight weeks. There could be enough demand to propel such a stock to even greater heights.

02/20/07 (Tue) Winning Ways "Fresh Technology Powered Iomega's Spectacular Rise"
shortly after said it would sell 5.3 million new shares to fund new manufacturing capacity, research and sales. The stock sold off hard on the news. This is often the case when new stock offerings are announced. Shareholders don't like their ownership being diluted as more supply hits the market.

It was set for its big run-up. The stock traced 10 up weeks out of a total of 11 all the way to the top in May 1996. Its price erupted fivefold in that short time span. This was a sure sign of a climax run.Also, at the top, Iomega was 320% above its 40-week moving average, another strong indicator of climactic price action.

During its run, the stock also had two stock splits: a 3-for-1 and a 2-for-1 within only four months. When a company splits its stock successively within such a short period of time, the stock may be in trouble. The company is trying to lure in more investors by making its stock cheaper.

02/12/07 (Mon) Investor’s Corner “Energy Stock Reversal's Lesson? You Need To Know When To Fold 'Em"
Even highly rated stocks can fritter away their gains in a hurry. That's why it's important that you follow this investing rule: Never let gains of 20% or more round-trip down to zero, or worse, into a loss.Stocks that shoot up 20% or more within the first three weeks after a breakout should be held at least eight weeks.For all other gainers, be alert for sell signs. If your stocks repeatedly dive in heavy volume or slice through a key trend line such as the 50-day moving average in historically heavy trade, be ready to cut bait.

02/05/07 (Mon) Investor’s Corner " A Guide To Counting Bases In Stock Charts”
Stocks making new highs tend to continue rolling higher. But there are such things as winners that have gone up too long, too much.
Growth stocks typically form a few bases during their major advances, often topping out after their fourth base. That's what IBD refers to as a late-stage base.From there, it's usually a long, deep decline. Therefore, knowing how many bases a stock has formed is critical.Today, we go over the key aspects of counting bases.As you study the chart (it's best to use a weekly one) isolate all corrections of seven weeks or longer, plus any flat bases of five weeks or more.How far back do you count? In most cases, you start counting with the first base once the current bull market started, in March 2003.Bear markets "reset" the base count on all stocks, wiping the slate clean for new rallies to take root.Also, don't count bases until the company is producing strong earnings and sales growth, the type that you would demand from your investment candidates.Baker Hughes, (BHI) for example, didn't become a growth stock until its 87% EPS gain in Q1 of 2004. Thus, its first base was the March-July pattern.Make sure the stock has gone up at least 20% from its last breakout before you count another base. Start from the proper buy point of the last breakout. That's usually 10 cents above a key resistance point, such as the handle in a cup-with-handle base.Corrections starting before that 20% threshold could simply be normal pullbacks. For example, Baker Hughes climbed 16% from its February 2005 breakout before forming a new correction the next month.That was a base-on-base pattern - from October '04 to early June '05 - that should be considered a single base in your count.Sometimes, stocks form irregular or improper bases. If they result in a 20% or better advance, include them in your base count.Bear markets aren't the only way to reset base counts. Another way is when a stock falls so much that it undercuts the prior base. Sometimes, stocks hit their peak after third-stage bases. That's what may have happened to this oil services provider; the stock is now 21% off its high.

01/22/07 (Mon) Daily Stock Analysis "Nice Systems Ltd.(NICE)”
Since the gain was less than 20%, the new base is deemed to be part of a base-on-base pattern and counted as a single base.

01/22/07 (Mon) Investor’s Corner " Investing Success Doesn't Require Perfection”
If a stock vaults 20% or more in three weeks, it requires exceptional attention. Hold it for at least five more weeks — chances are you have a winner and you don't want to miss out on potentially huge gains.
If you've accumulated a nice gain and the market suddenly takes a plunge on heavy trade, it may be time to take your cards off the table and move to cash.

01/19/07 (Fri) Investor’s Corner "Prepare, Then Pull The Trigger At Buy Points ”
But some suffer from the opposite affliction - they invest time and energy to meticulously research their stocks. Then when a breakout rears up and the stock spurts past its buy point, they become gun-shy. They hem, they haw, they miss the bus. The factors at work involving a company, its share price, the stock market and the economy are complex. The purpose of applying CAN SLIM criteria to a company and its stock chart is to isolate the time at which all these factors converge and the chance of a major price move is greatest. Using proper buy points helps to reduce risk and maximize potential returns.

01/11/07 (Thur) Investor’s Corner "Flat-Base Patterns Can Lead To Big Gains”
The flat base isn't as common as a cup-with-handle base, which often forms while the stock and overall market take a breather, or a double-bottom, which usually occurs during a choppy market. But it can be just as compelling. Stocks forming a flat base will remain near a 52-week high, instead of undergoing the steeper correction typical of cup-shaped patterns. They should pull back no more than 10% to 15% from the high to the low of the base, and can form in as little as five weeks. By contrast, cup-shaped bases require at least seven weeks and can correct 15% to 35%, sometimes more. Flat bases usually form after a stock rushes out of a prior breakout, then stalls. All stocks, as well as the market, need time to digest their gains. When the market resumes its advance, the stock may be poised to rally to new highs. The ideal buy point is 0.10 above the high of the flat base. As with the cup or double-bottom, the breakout should occur on volume that's at least 50% heavier than usual.

01/09/07 (Tue) Myth Buster "Smiling CEO's Face Often Spell Trouble”
A company's CEO just appeared on the cover of a major magazine, and everyone on Wall Street is talking about it. Great news, right? Usually it's just the opposite. By the time a company reaches this exalted status, everyone already owns its stock. That means there are few strong buyers left in the market to drive its price higher. The company's earnings and sales growth will usually look great by this point. But stocks always look the most attractive at the top. Most stocks will peak and start to roll over well before their fundamentals fall apart. The market often works in contrarian ways. When a stock is overbought, it may be time to sell. Another example of the market's contrarian nature shows up when a healthy stock forms a handle in a cup-with-handle base. Impatient investors may sell shares, thinking the stock is not going anywhere. But what's really happening is that the last weak investors are being shaken out. That constructive action often sets the stage for a stock to stage a powerful breakout in brisk volume. The major market indexes will sometimes stage a follow-through day just as investors appear most bearish. That's another contrarian sign, one that has presaged every bull market in Wall Street history.

01/09/07 (Tue) Investor’s Corner "Pick Cash Flow Leaders In Industry Group”
….turn to another gauge of a company's financial health: cash flow from operations.
To calculate operating cash flow, add depreciation and amortization and other noncash items to the net income number. To get the per share amount, divide the figure by total number of shares outstanding. Cash flow from operations can be found in a company's SEC filings. Its cash flow statement in the 10-Q (quarterly) and 10-K (annual) forms includes three components: cash flow from investing, financing and operating activities. The last one specifically refers to a firm's day-to-day business. Healthy firms should show positive and rising cash flow from operations. This means they have enough cash to pay bills, dividends, buy back stock or invest to grow their business. It also shows that they're able to efficiently manage their accounts receivable and inventory. But it's important to look at the cash flow figure within the context of a specific industry. Each industry will have its own range of acceptable levels of cash flow. So if you want to select the best firm within an industry group, pick the one with the highest cash flow from operations per share vs. earnings per share, in addition to other strong fundamentals. As a rule, growth stocks should have cash flow per share of 20% or more above their most recent year's earnings per share. So if a firm earns $4 a share, look for operating cash of $4.80 a share or better.

01/08/07 (Mon) Investor’s Corner "History Always Repeats Itself In Stock Market”
The best stocks carve certain bullish patterns, regardless of the era. Whether in the 1920s, 1950s, 1980s or today, stock charts always look the same.
Those patterns include the following: the cup with handle, saucer base, flat base and double bottom. You also will find shorter patterns such as the three-weeks-tight and the high-tight flag throughout the stock market's history.
The classic cup-with-handle base, for instance, is little more than an outline of investor emotions, with fear and greed dictating the dips and surges on a stock's chart.

01/05/07 (Fri) IBD Glossary “Buying Range”
A set of prices beginning with a stock’s optimal buy point and 5% thereafter. It also applies to cases where a stock, following its breakout, pulls back to its 50-day or 10-week moving average and rebounds from that point. The buying range starts with the rebound from the moving average and up to 5% above the 52-week high just prior to the pullback. Only the first or second post-breakout pullbacks are considered proper buying ranges. These price ranges occur at levels where there is a high probability that a stock will keep rising.

12/26/06 (Tue) Investor’s Corner "Distribution Can Clue You In To The Broad Market's Topping Action"
A distribution day occurs when one or more of the major indexes (the Nasdaq, S&P 500 or Dow industrials) falls more than 0.2% in higher volume than the previous trading day. When volume spikes sharply higher but the market fails to make any price progress, that's churning, another sign of distribution.

12/22/06 (Fri) IBD Glossary

12/22/06 (Fri) Investor’s Corner "Follow-Through Clears Way For New Rally”
Today's topic is the market follow-through. It often comes soon after a market bottom, and can help you spot the right time to jump back in.
A follow-through occurs after the market has withstood a downtrend. The severity of that downtrend can range from a painful bear market to a milder, shorter-term correction.
Following a downtrend, you're looking for a day in which the market rises in price. The size of the price gain and the volume that day aren't relevant. That up day counts as Day 1 of an attempted rally.
The next two sessions aren't that important. As long as the market indexes don't undercut the Day 1 low, the rally try remains intact.
From Day 4 and on, you're looking for one or more of the major market indexes — the Nasdaq composite, S&P 500 or Dow industrials — to log a significant price gain, in higher volume than the previous session.
The size of that price gain has varied over time. Twenty years ago, when the market was less volatile, a 1% gain sufficed. During the height of the bull market of the late '90s, a gain of 2% or more was the benchmark.
Today, the preferred gain is about 1.7%, though that can vary slightly, depending on volume, the state of leading stocks and other factors.
That follow-through can occur on Day 4 of the rally try, or any time afterwards — be it Day 7 or Day 30. Those later follow-through days are rarer, but also have been successful in the past.
After a downtrend lasting several months, the Nasdaq hit bottom July 18, rebounding to gain 0.3% on Day 1 of a new rally try 1. The index spent the next few weeks bouncing up and down, without undercutting the Day 1 low or following through.
On Aug. 15, the Nasdaq surged 2.2% in higher volume 2, a clear follow-through on Day 21 of the count. A 1.6% gain the next day helped confirm the rally 3. The Nasdaq remains in rally mode today.

12/20/06 (Wed) Investor’s Corner "Saucer Bases Can Foster Powerful Run-Ups”
A cup-shaped base can decline as much as 50% in a bear market. Meanwhile, a flat base will decline no more than 15%. In a saucer base, a stock will correct about 12% to 30%, from peak to bottom.

% volume change
67% volume change [(2905 x 100/1742) – 100]
% volume change = [(This day’s Volume x 100/ADV) – 100]

12/19/06 (Tue) Investor’s Corner "Double-Bottom Base Can Yield Big Gains"
Today we'll focus on a less common but just as compelling pattern: the double bottom.
The second leg down often helps shed the rest of the weak holders who didn't get shaken out during the first drop. Mutual funds and other big players may also step in at this point, if the price has fallen to a level they consider attractive.
You usually want to see the second low price undercut the first - but there are exceptions. The ideal buy point for this pattern is 0.10 above the middle peak between the two lows. The middle peak should be below the left high in the base and above its midpoint.
Sometimes a handle will form along the upper right side of the double bottom. The buy point would then be 0.10 above the high of the handle. In either case, the breakout should occur on at least 50% higher-than-normal volume.
If you look at a weekly chart, you'll see the stock closed in the upper half of its weekly range in both bottom weeks, a sign of support. The stock didn't blast past its middle peak. Instead, it forged a downward-drifting handle. That set up an ideal buy point of 34, or 0.10 above the high of the handle.[see Daily chart of ZUMZ, Aug-Sept ‘05].

12/18/06 (Mon) Winning Ways "Safeway Was A Safer Buy After It Rang Up Stronger Earnings"
The handle appeared to be low in relationship to the whole base. But the handle's midpoint was slightly higher than the base's midpoint.
(Calculate the midpoints by adding the high and low of the base and divide by two. Do the same for the handle. The result for the handle should be higher than the result for the whole base.)
The Relative Strength line matched its prior high on the breakout, as it ran ahead of the stock's price. That's a bullish indication.
One chance was in April 1996, when Safeway broke out of a six-week cup base. Although shorter than the seven weeks most bases require, cup-without-handle bases of six weeks often are successful.

12/18/06 (Mon) Investor’s Corner "Sound Cup-With-Handle Bases Aren't Always As Pretty As A Picture"
The cup-with-handle base is the most oft-used tool on the CAN SLIM workbench. For many decades this pattern has prefaced many of the biggest run-ups by winning stocks.
The pattern is a kind of snail's trail left by institutional investors. It starts when a stock's price begins to correct, generally when larger investors cash out. The base technically begins on the first down day following a run-up of at least 20% from a prior breakout.
The bases are visible on either daily or weekly charts. Several basic elements separate healthy cup-with-handle formations from weak ones.
Measure the price correction from the down day or week after the intraday high price of the base's left rim to the cup's nadir, its lowest intraday price. Drops for this shape are at least 20%. Corrections deeper than 35% are more prone to problems. But in bear markets, the dip may be as much as 50% and still presage a promising breakout.
In either case, the entire base must be at least seven weeks long. This is measured from first week of the correction to the week before the breakout. While seven weeks is the minimum, these bases can extend to a year or more.

12/15/06 (Fri) Investor’s Corner "Top Stocks Own Superior Profit Margins"
Generating profit is at the core of a healthy business. Profit margin shows how much income a firm generates per dollar of sales. If a company has a 10% margin, that means it generates 10 cents for every dollar of goods sold. IBD looks at two measures of profit margin. The pretax margin divides the firm's quarterly or annual pretax income by quarterly or annual sales. After-tax margin uses after-tax income in the calculation. IBD excludes unusual items such as accounting adjustments or discontinued operations. The best firms will increase their margins from quarter to quarter and year to year. It's not only absolute growth that's important; it's also how a firm's margin compares with that of peers in its industry group.

12/14/06 (Thur) Inside Investor’s "Stocks On The Move Displays Potential Winners"
The four-month market rally has yielded many big winners, and many have a common bond: They made appearances in Stocks On The Move - located on the home page of investors.com - on the day of their breakouts.

Volume percent change is the best way to tell when a stock's volume is heavy. Volume percent shows how much volume a stock traded compared with its 50-day average. For example, a stock will have a volume percent change of 100% when it trades 4 million shares with an average daily volume of 2 million shares. Gauging Volume In Stocks On The Move, a stock's volume percent change is calculated each hour based on its projected total for the entire day. Here's a how it works: Each trading day lasts 6 1/2 hours. Say a stock has an average daily volume of 100,000 shares. Divide 100,000 by 6.5 and you get 15,385 shares per hour. If the stock has traded 30,000 shares at the end of the first hour of trading, it would translate into volume percent change of about 100%. Stocks On The Move is good way to practice your technical analysis skills, too.

12/13/06 (Wed) Investor’s Corner "Return On Equity Gauges Company's Efficiency"
There's more than one way to determine ROE. IBD's method is to divide annual operating income by an average of the last two fiscal years' stockholders' equity. IBD also blends ROE in its SMR Rating, a gauge that also includes sales growth and profit margins. Stockholders' equity, in turn, is a balance sheet item that shows the difference between assets and liabilities. That result, expressed as a percentage, shows how efficient a company's management is with its equity funding. This allows shareholders to ask, "How good are these guys doing with my money?"
Remember, ROE's base is shareholder equity. Debt is a liability, which is subtracted from assets to derive stockholders' equity. Issuing new debt makes the equity base smaller, and thus hikes ROE. So look for a great ROE and a low debt-to-equity ratio in tandem.

12/12/06 (Tue) Investor’s Corner "Hold Big Early Movers At Least 8 Weeks"
A new investing rule emerged. When a stock rises 20% or more in the first three weeks after breaking out, hold for at least eight weeks. Thousands of patterns confirm the value of this strategy. A stock will often stage a powerful breakout, run up for a bit, then pull back. By using this buy-and-hold rule, you eliminate any doubts you might have about a stock and whether or not you should take a quick profit.

12/08/06 (Fri) Investor’s Corner "EPS Estimates Can Help You Spot Winners"
As a rule, stick with companies that have scored year-over-year earnings growth gains of at least 25% in recent quarters and have earnings estimates of 15% or higher in the coming year.

12/07/06 (Thur) Investor’s Corner "Spotting The Buy Point: Base-On-Base"
Some leading stocks will pull back to the 50-day moving average on light trade, then bounce back up in heavy volume. In this case, the secondary buy point would be 10 cents above the high before the pullback.
Southwestern went on to build a flat base, as the decline from peak to trough was just 11%. Since the stock started forming this later base after a 13% run-up, it qualifies as a base-on-base, not a stand-alone base. If it had gained at least 20% from the earlier breakout, it would have counted as a new base. (SWN daily chart Jan – July 2004).

12/06/06 (Wed) Investor’s Corner "New Leaders Require Growth, Strong Market”
NetEase (NTES) started a handle with a 17.82 buy point on March 27 2, correcting 19% peak to trough 3. A handle can dip 20% or more in a choppy market and still presage a sound breakout, as long as the stock owns other strong traits. NetEase staged a breakaway gap April 7 4. It went on to gain 381% in the next five months.

12/05/06 (Tue) Daily Stock Analysis “CSCO”
On its weekly chart, Cisco formed a four-weeks-tight pattern (Point 2). Although not common, this pattern has led to big gains, especially among the market's top leaders. In a three-weeks or four-weeks tight pattern, the weekly closes are all within 1% of each other, indicating support.

12/04/06 (Mon) Investor’s Corner "Look for Strong Relative Price Strength Rating Before the Breakout”
“ . . . .You should insist on an RS Rating of 80 or higher before the stock breaks out of a well-formed base. . . .

Studies of the biggest winners in market history show that the best stocks usually prove themselves before they embark on huge runs. A rising RS rating shows that solid buying already is coming into the stock. In fact, the price already should have risen at least 20% before a stock forms a strong base and you start considering the investment.

The RS Rating tracks a stock’s 12-month performance against the S&P 500, with more emphasis placed on the last three months. It then compares the stock’s results to those in all other stocks.

An RS Rating of 90, then, would mean that the stock did better than 90% of all others in its performance against the S&P 500.”

“The Investor's Corner article 12/04/06 is incorrect. It looks like the description of RS Rating incorporated the definition of the RS Line. Simply put, the RS rating is a measure of a stock’s price performance over the last twelve months, compared to all stocks in our database.” (IBD e-mail, 02/17/07)

12/01/06 (Fri) Investor’s Corner "Exercise Patience When Holding Top Stocks”
Decades of IBD research show that four out of every 10 big market winners will pull back to their original buy point before taking off for huge gains.

11/30/06 (Thur) Investor’s Corner " Volume Trends Gauge Market's Strength "
Every rally peaks when multiple distribution days - declines of more than 0.2% in greater volume than in the prior session - build up over a four-week span.

And every market correction or bear market has ended with a follow-through. That's when a major index jumps sharply (usually 1.7% or more) in higher volume than in the prior day. This occurs some time after the third day of an attempted rally.

11/27/06 (Mon) Winning Ways "Amazon Provided Proof Some Fallen Leaders Come Back"
Concerns: Second chance to buy when stock declines to then bounces off 50 Day Moving average (50 SMA) See weekly chart for AMZN late April 2003.
The stock paused in April, pulling back to its 10-week moving average line. The ability to bounce off this line is a bullish sign. And that's just what Amazon did, giving investors a chance to buy shares.
Its buying range was 25.25 to 29.45. The lower point was the spot where it touched the 10-week line at 25.25. The upper point was calculated by adding 0.10 to the peak of its pullback at 27.95 and then adding 5%

11/24/06 (Fri) Investor’s Corner " Don't Miss Good Stocks By Buying Late”
A secondary buy point may appear when a stock pulls back to its 10-week moving average after clearing a base. If the stock rebounds on increased volume after finding support at the line, it's an opportunity to add more shares or take an initial position. In that case, the buying range of the stock lies between the support level at the moving average line and 10 cents above the high it hit prior to the pullback.

11/20/06 (Mon) Winning Ways "Green Mountain: Rare Market Winner During Slowdown"
Despite questions about its liquidity, Green Mountain's breakout quickly produced results. The stock doubled in five weeks. It surged 20% in less than three weeks. Whenever a stock makes a 20% or higher gain in the first one to three weeks from its breakout, it should be held at least eight weeks (starting at the breakout). Stocks that make rapid climbs like that tend to be the best winners. (See daily chart for GMCR 10/10/2000).

11/17/06 (Fri) Investor’s Corner "Stocks Off To Early Lead Tend To Score Big"
Here's a historic pattern worth remembering: Stocks that break out right after the market confirms a new rally tend to score the biggest gains during the coming uptrend. The rally confirmation occurs when one of the major stock indexes climbs sharply - usually 1.7% or more - on higher volume than the prior day. This follow-through happens sometime after the third day of a rally attempt. A good place to look for leading stocks making big moves is the Stocks On The Move tables for the NYSE and Nasdaq. They appear each day in the B section of IBD. A combined version is available at IBD's Web site, investors.com, and is updated throughout the day.

The Internet portal pioneer had spent the previous nine weeks forging a cup-with-high-handle chart pattern. (See chart YHOO for Jan – April 2003).

11/17/06 (Fri) Investor’s Quiz "Nvidia's Pullback Gave Investors A Second Chance To Buy A Winner"
Not every pullback touches its 50-day line; some find support just near it. Volume was light as the stock retreated and was a bit above average during the week it bounced back. That's exactly how a good pullback should occur. If you're buying a stock on a pullback, the buy point is set by taking the high before the dip. In Nvidia's case, the high was 31.02. Add 10 cents, and the new buy point was 31.12.

(See chart NVDA for Jul – Sept 2005)

11/15/06 (Wed) Investor’s Corner "Calm Handle Sets Stage For Powerful Breakout "
A cup-with-handle base is a classic example of a bullish price pattern.
After a stock has consolidated for seven weeks or more (up to a year or more), it will drift and show quieter action. The stock should drift lower, (handle) correcting 5% to 15%.
A well-constructed handle will generally last at least a week. Volume should turn whisper quiet.
That calm action will bore the last remaining weak holders of the stock to tears. Tired of waiting, they'll ditch their shares, clearing the decks for a powerful breakout.
A classic example: Microsoft's (MSFT) breakout in January 1991
Microsoft's handle extended for four weeks, easily meeting the one-week minimum needed as a prelude to a strong breakout.
Microsoft became one of the biggest stock winners of all time. An investment of $1,000 at the breakout point (+76.85) in early 1991 (January 10th) would have grown to $4.1 million by the time the stock peaked in December 1999.

11/10/06 (Fri) Investor’s Corner "Top Stocks Can Overcome Brief Market Blips"
A leading growth stock can withstand a decline 2 1/2 times deeper than the market's and still remain intact;……

11/08/06 (Wed) Investor’s Corner "Don't Wait For Fundamentals To Deteriorate"
When it comes to selling, waiting for a stock's fundamentals to break down can make you late in pulling the trigger. Though strong sales and earnings growth serve as a strong foundation for a stock's success, they're usually a lagging signal when it comes to selling a stock. A better strategy is to base your sell decision on a stock's daily and weekly price and volume action. These technical signals can alert you to brewing problems and help you avoid them - often months before the fundamentals crumble.

Sell Signs
The stock may experience churning, which occurs when volume is very heavy but the stock makes little price progress.
On the flip side, a stock that's notching new all-time price highs on light volume also may be nearing the end of its upward journey.
Or volume may heat up as a stock tumbles downward, crashing through a key moving average such as the 50-day or 10-week line.
The stock also may begin to form faulty, late-stage bases - carving out a handle that wedges upward rather than downward, or a pattern that's wide and loose.

10/23/06 (Mon) Winning Ways "Blemishes Obscured The True Strength Of America Online "
A 35% decline within any base is about as much as you should normally tolerate.
No rally lasts forever. AOL's advance ended in a classic climax run.The stock doubled in just four weeks. In the process, it gapped up 3.56 points on March 30, a telltale sign of such a top.And it had soared as much as 71% above its 10-week line, a sign it was way ahead of itself.

10/09/06 (Mon) Investor’s Corner “How To Get A Grip On Low-Volume Breakouts”
The classic breakout occurs when a stock crosses its buy point as volume jumps at least 50% above its 50-day average.Light-volume breakouts often presage a downturn in a stock. Other times, volume can pick up in the days or weeks following the breakout. That pushes the stock higher, same as if the trading jump had occurred on the breakout.

10/07/06 (Tue) Investor’s Corner “High P/E Stocks Can Be A Smart Investment”
But you can use the P/E ratio as a secondary sell indicator. Studies have shown that stocks that see a 130% expansion in their P/E ratios during a run-up will sometimes peak and become sell candidates.Just multiply the P/E at the breakout by 2.3. Then multiply the result by the future 12-month earnings per share. You will get its target price. If your stock reaches that level, review its chart to see if it triggers any sell signals. If it does, consider selling. If it doesn't, you may want to hang on, as more profits may be in store.

10/03/06 (Tue) Investor’s Corner “Pullbacks To 10-Week Line Offer 2nd Chance”
When a growth stock that's been heading higher falls back to touch its 10-week or 50-day line, then begins to climb higher, it's time to start scouting out a buy point.The buy point is 0.10 above the highest price the stock hit before it began to pull back.Ideally, you like to see volume pick up as a stock ricochets off its moving average line - the bigger the volume, the more institutional support it's attracting.

10/02/06 (Mon) Investor’s Corner “Cup-With-Handle Base Can Lead To Big Gains”
The most successful chart pattern is a cup-with-handle base, so named because it looks like the sideways silhouette of a teacup, with a handle at its right side. Its formation should be preceded by an uptrend of at least 20%.The bottom of a cup-with-handle pattern should be rounded and smooth. If a stock instead forms a V-shaped or lopsided base, it's more likely to fail.A cup-with-handle base can be as short as seven weeks or as long as a year or more. The cup shouldn't be too deep. The correction from the peak of the cup to the bottom often ranges from 20% to 30%. It can run as deep as 2 1/2 times the size of the major indexes' correction during a volatile market cycle.When a stock forms the left side of a cup-with-handle, the ensuing selling tends to scare away weak investors. That takes the crowd's attention away from the stock.As the stock carves the bottom of its base, volume should ease. When the stock rebounds and forms the right side of its base, volume should grow, a sign of healthy buying.A handle forms as the price slopes gently downward, shaking out the last of the weak holders. Price and volume should subside in unison. In a proper handle, the midpoint of the handle should be above the midpoint of the base.After the handle forms, watch for the stock to surge higher in heavy volume. A breakout occurs when the stock crosses its optimal buy point, 10 cents above the high point in the handle. Volume should leap at least 50% above average. The greater the volume, the better.

09/28/06 (Thur) Investor’s Corner “Distribution Days Can Signal Market Top”
When big investors head for the exits, the party's over for the smaller ones.One way to spot that trend is to pay close attention to distribution days - days when the market is down more than 0.2% on higher volume than the previous session.

Not all indexes have to decline on heavier trade. If one of the major gauges suffers heavy distribution - for instance the Nasdaq, but not the S&P 500 - that can signal possible trouble ahead.Churning at the top - when the market is making no price progress near its top but volume is brisk - is also a bearish signal. This means that a lot of institutional trading is going on, but the buyers' demand is not strong enough to push stock prices higher.

09/25/06 (Mon) Investor’s Corner “Banking Smaller Gains Can Sometimes Beat Swinging For The Fences”
If a stock rises 20% in the first week or two after you buy, hold it at least eight weeks; that kind of quick mover can mature into an elusive big winner. Consider adding shares to that kind of stock at optimal follow-on levels.

09/22/06 (Fri)
http://www.investors.com/learn/b10a.asp
Using Charts To Round Out Stock Selection, Part II
The key to reading stock charts is knowing what to look for. This lesson explains how to evaluate charts and the characteristics that distinguish the winners.
The Most Successful Chart Patterns
Research shows the greatest stock market winners formed one of five basing chart patterns at the beginning of their major price advances or shortly thereafter.
· Cup with handle http://www.investors.com/learn/b10b.asp , http://www.investors.com/learn/b10c.asp , http://www.investors.com/learn/b10d.asp ,
· Saucer with handle http://www.investors.com/learn/b10f.asp ,
· Double bottom http://www.investors.com/learn/b10g.asp ,
· Flat base http://www.investors.com/learn/b10e.asp ,
· Ascending base http://www.investors.com/learn/b10h.asp ,

09/22/06 (Fri) Investor’s Corner “Some Strong Stocks Come From Weak Groups”
Although it's crucial to consider industry groups when choosing stocks, don't make them the starting point for finding winners.

Some groups are so small that signs of groupwide strength may not be relevant.

If a stock's group isn't ranked among the top 25% in the market, look for at least one or two other highly rated companies in the group to confirm the strength of the stock you're researching.It's better to first look for stocks forming sound bases, showing signs of accumulation. Then check the company's fundamentals. Look closer if the stock sports the best long-and short-term earnings and sales growth compared with its peers.

A drawback of focusing strictly on industry groups is that the best stocks in the group often break out weeks or months before the others. So by the time the group rises to the top of the industry rankings list, the best stocks are well extended, making it too late to buy. Some stocks in the top groups will be in late-stage bases and extended because they've made big price moves.

You like to see signs of support from another top stock when the group as a whole is lagging.

09/21/06 (Thur) Investor’s Corner “Trend Line Can Reveal Earlier Buy Point”
Normally, the buy point sits 0.10 above the highest price in the handle. That's the stock's way of telling you it's lifting beyond levels where it met sellers in the past.A successful handle consists of a price pullback that develops late in the base and lasts at least one week. Volume should ease in the handle and should form in the upper half of the whole base. In most cases, handles shouldn't fall more than 15%.If the area in question passes these tests, you probably have a valid handle and you can look for a buy point based on it.In some cases, you can draw a trend line across the highs in the handle, especially when it's a long handle. The stock presents a buy point as soon as it breaches the trend line, provided volume is at least 50% above average.

09/18/06 (Mon) Daily Stock Analysis “Gymboree (GYMB)”
Three weeks tight is bullish action after a breakout. The pattern occurs when a stock closes within 1% of its previous close over a period of three weeks.

Gymboree traveled close to its 40-week moving average in early August before flashing a support week in heavy volume (Point 4). In a support week, a stock closes near its high in heavy volume.

09/15/06 (Fri) Investor’s Corner “Most Money Is Made By Waiting, Not Trading”
Keep an eye out for stocks with extra oomph. One that shoots up 20% or more in only one to four weeks should be held for at least eight weeks unless it falls all the way back near your buy point. Stocks that show this kind of strength often double or triple in short order. But they often correct sharply, shaking out those who don't follow the eight-week rule

09/12/06 (Tue) Investor’s Corner “Charting: Look To The Past To Lift Your Returns”
head-and-shoulders pattern
…if we don't learn from history, we're doomed to repeat it." That's the chartist's warning, especially to those holding stocks that have notched big gains. Reversals, head-and-shoulders patterns, late-stage breakouts, low-volume breakouts and climax runs are common ways that leading stocks peak.

Re: Chart for ECLG (Sept ’03 – Sept ’04)
The weekly chart shows a head-and-shoulders pattern: A neckline connected the main bottoms of this topping formation. The breakdown was confirmed in the week ended April 30, 2004, as eCollege sliced through its neckline to begin a full-fledged rout. Most important, the stock reversed sharply lower as it failed to rally back above its 10-week moving average. This was not the first clue to sell eCollege. If reversals, low-volume gains or just overextended rallies don't scare you, the head and shoulders can be your wake-up call.
Current stocks (09/12/06) exhibiting the head-and-shoulders pattern are BTU and GOL.

09/11/06 (Mon) Investor’s Corner “A Company's Cash Flow Helps Give A Clear View Of Its Operations”
Studies of the best growth stocks - particularly those in the technology field - have shown their cash flow per share was at least 20% higher than their annual EPS. So if a firm earned $1 a share last year, its cash flow from operations should be at least $1.20 per share. The figures can be found in the companies' 10-Q (quarterly) and 10-K (annual) financial reports.

In addition to the firm's financial statements, cash flow per share can be found on a number of financial Web sites, including Daily Graphs Online, a sister company of IBD.

09/08/06 (Fri) Daily Stock Analysis “PRFT Perficient”
Perficient offers the latest example of a base-count reset because the low in the current consolidation (11.25) undercut the low of the prior flat base (11.55). This means that Perficient’s current 13-week consolidation is a first-stage base. Notice the series of tight weekly closes the stock flashed between late June and mid-July (Point 3). That’s an element of strength because it reveals price support. One negative in the daily chart is the wild price swing on August 4 (see daily chart). This is referred to as an “iceberg.” Bases with such aberrations can be prone to failure, but Perficient's price action on this day was similar to the Nasdaq's where the index closed well off its highs for the session. In this case, the positives in Perficient's chart outweigh the negatives. Its daily chart shows a five-day handle not seen in the weekly chart. If the recent selling in the market abates, Perficient could try to pass a potential buy point of 13.85.

Perficient has an Overall Rating of 95 (A), ranking it No. 2 out of 73 stocks in the Computer-Tech Services group. Two stocks in the group, Cognizant Technology Solutions (CTSH) and Infosys (INFY), are ranked in the latest IBD 100. The Group Technical Rating of 41 (D) is hurt by the group’s sharp correction in recent months. It corrected 18% from its April 27 high to its August 10 low. Also, few stocks in the group have hit 52-week highs in recent weeks. A low Group Technical Rating is OK so long as there are one or two other leaders in the group. Through Wednesday, the group ranked 87th in IBD’s 197 Industry Group Rankings. Perficient’s strong earnings and sales growth is reflected in its Fundamental Rating of 99 (A+). It owns a three-year EPS growth rate of 134% and a three-year sales growth rate of 76%. Growth has been strong in recent quarters as well.

09/08/06 (Fri) Investor’s Corner “Handle Illustrates Shakeout Before Rally”
Chart: SCHN (May 2002-Sept 2003)
Note that a handle isn't limited to the cup with handle; it can show up in a double bottom or other bullish patterns. By studying the price and volume action in the handle, investors can learn whether a constructive shakeout takes place. Look for these characteristics: The handle should be at least five days in duration and could run many weeks in longer bases. Handles should form in the upper half of the overall base. If it's difficult to tell just by looking at the chart, you can check mathematically. Add the highest point in the base with the lowest point and divide the total by two. Do the same calculation for the high and low in the handle. The result of the handle's midpoint should be higher than that of the base. The correction in the handle should be no more than 15% or so. In a bear market, handles may be deeper. Some deep pullbacks may be considered normal if they form during a time when the general market is sharply lower. Volume in the handle often is light, showing that while weak holders are exiting, there are still many bulls. Handles in which the price lows trend higher are considered weak. Such wedging reflects a rapid sell-off that probably didn't clear out all the bears.

09/07/06 (Thur) Investor’s Corner “Buy IPOs On A Breakout From A Proper Base”
Though the base was lopsided, you can tell that it formed a proper handle by calculating the midpoints of the base vs. that of the handle. In an ideal base, the midpoint of the handle should be higher than the midpoint of the base.

08/29/06 (Tue) Investor’s Corner “Quiet, Constructive Action Can Pay Off”
Tight, bullish Patterns
Among tight patterns, three often result in big price advances.
The shortest of the patterns can last as little as two weeks. It's called a short stroke. After a powerful breakout week, the stock settles in quiet trade during the following week.
The high-low range in the second week is no more than a few percentage points as volume diminishes. Its close should be a tad higher than the first week's close. A short stroke provides a good opportunity for an investor to add shares to a winning position during the second week.
A slightly longer pattern is the three weeks tight. After a strong advance, the second and third weeks close within 1% of the prior week's closing price. A breakout occurs when the stock powers above the high of the formation.
The third pattern, the flat base, can last five weeks or more. The high-low range of the base should be no more than 15%.
In all three patterns, the message is the same. Institutional investors are reluctant to sell the stock despite the stock's powerful run-up. If big banks and mutual funds are holding onto their gains, it means there may be more to come.
Generally, quiet, constructive action for at least two weeks is a bullish sign. This is not to be confused with churning, when a stock fails to advance for several days as volume picks up. While the stock is changing hands rapidly, it's not making any upward progress.

08/28/06 (Mon) Winning Ways “Hot Condom Sales Led To A Big Run For Carter-Wallace”
The climax can be detected by drawing a straight line on a weekly chart with a logarithmic scale that connects three price points across the top. When the stock pops above that line, it's time to sell.

08/28/06 (Mon) Investor’s Corner “Spotting The Buy Point: Wynn Resorts Showed Technical Strength”
Different patterns mean different places to jump in. For a cup-with-handle stock, the optimal buy point lies 10 cents above the top of a handle at the end of the base. For a double bottom, it's 10 cents above the middle peak of the base's W shape. For a cup-without-handle base, you're looking to buy 10 cents above the base's summit on its left side.

08/24/06 (Thur) Investor’s Corner “There's No E (For Economy) In CAN SLIM”
Remember, the stock market is a leading indicator of the economy, not the other way around. The market tends to look ahead, often several months or more, in placing valuations on stocks.

08/22/06 (Tue) “IBD Glossary” – Investor Education”
A six paragraph description of “Double-bottom base” could not be found in IBD’s archive feature.

08/9/06 (Wed) Investor’s Corner “Head And Shoulders Predicts Bearish Reversal”
Author: MARIE BEERENS
Chart (weekly): URBN, June ’05 – June ‘06
Technical analysts rely on many tools to see where the market is heading. One pattern they look at is the head and shoulders. Considered one of the most reliable trend-reversing patterns, it emerges toward the end of an uptrend, signaling a top followed by a bearish reversal. The stock rises to a peak, called the left shoulder, then falls. The low of the decline usually stays above the stock's trend line, maintaining the uptrend. But soon afterward, new buyers come in and push the price above the former high as the stock forms the head of the pattern. The new high tends to happen on lower volume as the stock loses steam, a bearish sign. Investors will start to take profits. The stock declines, usually undercutting the prior trend line, putting the uptrend in jeopardy. Lower prices invite buyers again, but this time they're not as aggressive. The stock fails to surpass the previous high. Instead, it forms the right shoulder of the pattern. Buying volume dries up considerably. From then on, the stock goes into a downward trend.

Note how the second low (between the head and the right shoulder) was lower than the first low (between the left shoulder and the head), breaking the upward trend line.

06/29/06 (Thur) “Heartland Payment Systems” - DAILY STOCK ANALYSIS”
HPY - Because the breakout from 26.47 was less than 20%, the current consolidation is characterized as a “base on base” pattern. On Thursday, shares charged higher by nearly 7% to 28.01, bringing it closer to its 29.90 high. However, the spike was on below-normal volume. New Jersey-based Heartland Payment Systems is a stock that investors should keep an eye on for a heavy-volume breakout above the 29.90 high. An earlier buy point could be seen if the stock forms a handle.

06/29/06 (Thur) Investor’s Corner “Sinking A/D Rating Signals Trouble Ahead”
Accumulation/Distibution Rating
IBD's proprietary Acc/Dis Rating indicates whether institutional investors are buying or selling a stock.
The rating on a scale from A to E is calculated as an exponential moving average of inter- and intraday price and volume statistics. It's a reliable and accurate indicator that is more complicated than a simple up/down volume calculation.

02/28/06 (Mon) Investor’s Corner “Late-Stage Bases Elevate Risk For Investors”
Here's how to count bases: Cup-with-handle and double-bottom bases should last at least seven weeks. The time frame is a bit shorter for flat bases, which should last at least five weeks.
The stock must climb 20% or more before forming a new base.
If the gain is less than 20%, the new base is counted as part of the previous one. The base count resets if a stock's fall undercuts the low of the previous base.

02/27/06 (Mon) “Multiple Weeks Of Tight Closes In A Base's Handle A Positive Sign”
Better yet, also look for tight closes in the handle of cup-with-handle patterns, as well as a slight downward slant and a pullback in volume. That type of action indicates that most investors are willing to hold their shares at those prices. Only the weakest holders are getting out.
Proper handles take at least five days to form, but can go on for many weeks. Several weeks of tight trade offer a constructive signal.
Also keep in mind that handles should form in the upper half of the overall pattern, above a stock's 10-week moving average. Otherwise, you're looking at a stock that hasn't been able to properly recover from its decline due to weak demand, and is thus more likely to fail.

02/16/06 (Thur) “Flat base” in “IBD Glossary”
This is commonly seen after a stock has come out of a cup-with-handle or double-bottom base. The stock’s price goes sideways in a tight range for at least five weeks and corrects 8% to 12%.

Radvision Example (see RVSN weekly chart Oct ’05 – Mar ’06)
“Daily Stock Analysis read as follows: "At first glance, Radvision appeared to have pulled back near its 10-week moving average and rallied from there 1. But in fact the stock formed a flat base, even if it didn't look all that flat on its chart. The stock passed three tests to determine it was in a new base. First, it had gone up 26% from its last buy point, more than the 20% minimum gain to start a new base. Second, the stock corrected five weeks (12/02/05 – 01/06/06), the minimum length for a flat base. Third, Radvision retreated 10% (from 18.05 on 12/02 to 16.23 on 12/20), a range in line with proper flat bases."

02/17/06 (Fri) “Follow-through Day” in “IBD Glossary”
After a market correction, any gain by the market indexes counts as Day 1 of a rally attempt. A Follow-through day can occur on Day 4 or later of this rally try. For the Follow-through to take place, one or more of the market indexes (Nasdaq, S&P 500, or Dow) must climb 1.7% or more on higher volume than the previous day. The rally try remains in effect until the market undercuts its low or undergoes heavy distribution.

02/15/06 (Wed) “Three Weeks Tight Presents Buy Opportunity”
No stock can go up forever. The best stocks will often rise sharply, then offer follow-on buy points, where investors can add shares or start a new position. One such pattern is the three weeks tight. When a three-weeks-tight pattern occurs, the stock closes within 1% of its previous close over a period of three weeks. It's easiest to spot this pattern on a weekly chart. You should see three tight closes in a row. The weekly trading range is typically small, and volume should be fairly light. When you come across this pattern, it indicates that mutual funds and other professional investors are keeping their shares. A cup-with-handle base takes a minimum of seven weeks to form and may offer corrections as deep as 30%, 40% or more. When a stock etches a three weeks tight, it's stubbornly holding onto its gains. You'll see the three weeks tight most often among leading stocks. These stocks must show a significant prior price uptrend and sport strong fundamentals. If you bought shares of a stock at the breakout, buy a smaller number of shares if a subsequent three weeks tight emerges. For instance, if you buy 500 shares of a stock at the breakout, consider buying about 250 shares at follow-on buy points such as the three weeks tight.

02/09/06 Investor's Corner "A Double-Bottom Base With A Difference "
Consider the double-bottom base. The pattern forms when a stock pulls back into a short consolidation, then starts to head back up. But rather than continuing on, it falls back again even deeper than the previous downturn. On a stock chart, it looks like the letter "W". There are a few rules that go with a double-bottom base: The stock's decline, peak to bottom should be 20% to 50%. The base should take at least seven weeks to form. The buy point is calculated by adding 10 cents to the middle peak of the "W". A less frequent, but still powerful, variation on the double-bottom base is a double-bottom base that forms a handle before staging its breakout.

11/30/05 Investor's Corner "Double Bottoms Can Yield High Returns For Those Who Dare "
A pattern that can send investors on a roller-coaster ride is the double-bottom. It can hurl shares down anywhere from 20% to more than 50% off their high. But a double-bottomcan yield big gains when it works. A double-bottom base usually looks like a "W", making it relatively easy to spot. But other factors must work in the base's favor to make it a sound double-bottom. As with most other bases, a double-bottom needs to last at least seven weeks. The middle peak of the W should be lower than the high at the beginning of the base, but above the midpoint of the base. The buy point of a double-bottom is usually 10 cents above the middle peak of the W. If it has a handle - which is not essential for a double-bottom, but does sometimes happen, the buy point sits 10 cents above the high of the handle. The second bottom, or the second low in the base, should usually undercut the first one by roughly a few cents to two points. This is important step shakes out weaker holders. Studies of the best stocks over the past five decades show that in about 70% of all successful double-bottom bases, the second decline undercut the first, notes IBD founder William O'Neil. If the second decline is equal to or above the prior low, it shows sellers were not that concerned. On the other hand, if the second bottom plunges too far below the first, it could mean that the stock has bigger problems, and may be poised for a sell-off. Investors should also observe the volume within the pattern. Does the stock trade in a tight price range in light volume? Are there weeks of high-volume support at the 50- and 200-day trend lines? Price declines in the second part of the base usually happen on lower volume as the selling dries up. Once the stock has shaken out a good chunk of sellers, it is well-positioned for a new round of buying by institutional investors.

08/31/05 (Wed) "Watch-List Tasks Come Together With Resources At Investors.com”
http://www.investors.com/ibdarchives/default.asp?ps=9&sh=yes&ac=&ColHeader=&SO=#results

07/15/05 (Fri) “Buying Stocks Extended Past Pivot Can Mean Double Trouble (ALC)”
If your favorite stock goes up 10%, 15% or more from the buy point, don't buy it. Four out of every 10 leading stocks pull back to their buy point after a breakout before going on to big gains.
If you buy a stock that's extended, you may get shaken out with a quick 7% to 8% loss when the stock stages a normal pullback.
The stock may race higher after that pullback. If you bought it at or near the buy point, you're more likely to hang onto it, in position to benefit from the next price surge. But if you bought the stock too far above the breakout, then got shaken out, your emotions may make it tough for you to jump back in. If that happens, you could miss out on a big gain, adding insult to injury.

07/15/05 (Fri) “Be Sure Market Is In Full Retreat Before You Start Shorting Stocks”
“As most IBD readers probably know, the market's main topping signal is a series of distribution days.
Three to five distribution days in a span of a couple of weeks may signal the end of a market rally. Another symptom of fatigue is when volume on the Nasdaq or New York Stock Exchange increases from the prior session, but the indexes make little or no progress compared with the close from the day before. This action, known as churning, often occurs when big-money investors are heading for the exits.”

07/25/05 (Mon) “How To Use Your Weekly Review To Get Grasp On Sector Rotation”
“Each week, scan Weekly Review and make note of new industry groups showing up on it. This feature was beefed up last May, when IBD added 120 mini charts with key details, plus a brief analysis of the stock's technical action. As another help to investors, an article covers the latest action in the top sectors. Also watch for industry groups falling or disappearing from Weekly Review. That could mean the group is in trouble, or perhaps pausing.”

08/09/05 (Tue) “Weakness In An Industry Group Can Spread, Hurt Its Top Leader”
“When a stock shows promise, check to see if its peers in the same industry group are acting well. Insist on one or more group peers showing a Relative Price Strength Rating of 80 or better. The more strong allies in a group, the better.
Often, a group's demise starts when, after a long run-up, one or two key stocks in the group break down. The rest of the group will then come down in a domino effect.

08/12/05 (Fri) “Stocks Forming Late-Stage Bases Can Be Dangerous Investments”
“ a stock breaking out of an early-stage base still has room to run. It's probably more obscure at this point, with institutions just starting to take notice. To determine which stage a stock is in, count its bases. Each base should typically be at least seven weeks long. A prior run-up of 20% or more should exist before the stock falls into a new consolidation. Also note that when a stock breaks down sharply and undercuts the low of its previous base, the base count gets reset back to zero. this one was v-shaped and lopsided, traits that often lead to failure.”

08/18/05 (Thur) “Spotting The Buy Point: Valero Tapped Into Crude's Fast Climb”
“For the next step you want to see a downward-sloping handle form at 5% to 15% off the stock's high. That's what Valero did, starting its handle at 5.4% off the high of its base and hitting the bottom of that handle 13.5% off the base's peak. In all, the handle took 10 weeks to form. Though that's a bit long by typical standards, it's not out of line for a seven-month base. Quiet volume throughout most of the handle was a bullish sign, doing its job of boring the last few weak holders out of the stock, thus clearing the decks for a breakout.”
08/25/05 (Thur) “Compile a Roster of Top Stocks Using IBD, Investor’s.com Tools”
“Look for earnings growth of at least 25% for the past three quarters.” Look for “sales growth of at least 25% in the latest quarter, or with a pattern of accelerating sales.”

09/06/05 (Tue) “Taking Smaller Profits Can Still Net Big Returns If Done Right”
“To avoid having solid gains take a round trip, IBD recommends taking profits when your stock goes up 20%. That way even if you take a couple of 7% losses on other stocks, you're still in the black.

A 20% gain in a couple of weeks should be treated as exceptional. Thus even if your market pulls back a bit in light volume, give it room to run. If you've hit a bigger gain, and the stock and broad market suddenly plunge in heavy trade, that's a better time to take profits off the table.”

09/08/05 (Thur) “Over Time, Stocks With Earnings Outperform The Money-Losers”
“The A in CAN SLIM stands for Annual Earnings. You want to see a stock with a pattern of earnings growth of 25% or higher.”

09/09/05 (Fri) “Look For Follow-Through Days Even After Smaller Corrections”
“The (daily) chart shows the Nasdaq's follow-through day on May 4 of this year, on the fourth day of an attempted rally, following a four-month, 14% downtrend. Tuesday's follow-through (Sept 6) came on the sixth day of an attempted rally, after a shorter, smaller decline.”

09/12/05 (Mon) “Market Follow-Throughs: Out With The Old, In With The New”
“A follow-through day occurs when one of the major indexes makes a big northward move on heavy volume in the fourth day or later in an attempted rally.
Note that while every major market rally starts with a follow-though, not every follow-through day guarantees a sustained market rally.”

09/13/05 (Tue) “They Tend To Move More Slowly, But Some Big Caps Are Winners”
“Since the March 17, 2003 market follow-through, the small-cap S&P 600 has climbed about 85%. The MidCap 400 is up more than 70%.
Contrast that to the Dow industrials. The mega-cap index is up about 25% over the same period. The Russell 1000, another large-cap proxy, has done better, up more than 42%. The S&P 500 has gained 49%.

09/21/05 (Wed) “Composite Rating Saves Time By Combining Five Key IBD Ratings”
“Earnings Per Share measures current and annual profit growth then assigns a rating on a scale of 1 to 99, with 99 the best. Relative Price Strength compares a stock's price performance in the past 12 months with all other stocks. It's then given a rating from 1 to 99. Industry Group Relative Price Strength Rating compares a stock's industry group's six-month price performance with all other groups. The result is rated A+ to E. SMR Rating, which ranges from A to E, measures sales growth, pretax and after-tax profit margins and return on equity. A stock with an A SMR Rating makes the top 20% of stocks based on those metrics. Accumulation/Distribution Rating tracks the level of buying and selling by mutual funds and other big investors, based on daily price and volume changes. An A shows heavy buying; an E indicates heavy selling.
11/09/05 (Wed) “Bullish Shakeout Or Red Flag? Buy Right And Decision Is Easier”
CME broke out 09/20/05 – pivot (top of handle) = 308.34.

- “You should never buy a stock until it completes its base and breaks out. Thus you don't need to worry about hold or sell decisions at that time, because you haven't bought it. To see if the stock warrants a future buy, check if the handle returns to its quiet downward drift. If it does — and other technical and fundamental signs hold up — odds are the sudden drop was a bullish shakeout before a breakout.”

- “Stocks that climb 20% or more in the first couple of weeks after a breakout are the most likely to go on to huge future gains.”

On a weekly chart (see Daily Graphs Online or investors.com for details) the stock doesn't look like it formed a handle before its breakout, thus making its buy point 315.10, 0.10 above the top of the base. If you bought at that point, you'd have been forced to sell without worrying about whether this was a bullish shakeout or a warning sign.”

11/14/05 (Wed) “Saucer Base Can Take A While To Form, Requiring Patience”
-“A stock can break out of a flat base in as little as five weeks or a cup-shaped pattern in seven weeks. But a saucer base can take months or even stretch out for a year or two.
Corrections in this type of pattern tend to be deeper than the 10% to 15% typical of flat bases. They're also usually not as steep as a decline in a cup-shaped base, which can fall up to 50%. Like a cup base, a handle may form prior to a breakout.
Your buy rules stay pretty much the same as with a cup base. Look for a prior uptrend, leading stock and group status and institutional support. Volume should dry up along the bottom as some holders get shaken out, and ramp up as the right side forms. You want to see heavy trade at the breakout.”

-“Volume should dry up along the bottom as some holders get shaken out, and ramp up as the right side forms. You want to see heavy trade at the breakout.”

07/01/04 “Three Weeks Of Tight Closes Can Give New Entry Point”
-This column has discussed mild pullbacks to the 50-day moving average and breakouts from new bases as good places to add a smaller amount of shares. Another chart pattern, dubbed "three weeks tight" by IBD founder William O'Neil, gives another entry point.
The pattern usually appears after a stock has broken out of a base and is climbing higher. On a weekly chart, look for three weeks of price action in which the stock closes at virtually the same price.
In one week or two, the stock may swing from its peak and close lower. Or it might sell off early but rally strongly Thursday and Friday. Such swings are acceptable, as long as they are not excessive. The time to add shares is when the stock rallies the next week on spirited volume. That was the case for Sanderson Farms following its breakout from a cup-with-high-handle base. In the weeks ended Nov. 21, 28 and Dec. 5, the poultry producer closed at 22.95, 23.01 and 22.83 (before a 3-for-2 split) on subdued trade 1 . At the time, it rested on its 50-day moving average (please see a weekly chart).
The next week, Sanderson boosted ahead 4.9% on the heaviest trade in months 2 . The stock also traded three weeks tightly in May 3 before exploding ahead.
.

01/22/04 (Thursday)

Thursday, January 22, 2004
Some Winners Undercut The Pivot After The Breakout
BY NANCY GONDO
INVESTOR'S BUSINESS DAILY
Buy a good stock at the right time, and you're less likely to get shaken out on pullbacks.
After a stock blasts out of a base, it often needs time to digest those quick gains. It may pull back to its 50-day moving average or cross its pivot point. That doesn't mean you should jump ship. As long as a stock doesn't fall 7% to 8% below your buy price, you can stay in.
That's why it's important to get in at the pivot point, the ideal time to buy. How do you find it?
In the most common pattern seen among winning stocks, the cup-with-handle, the handle should start well within the upper half of the base. The handle must form for at least a week. A slight downward drift shows weak holders getting shaken out.
Add 10 cents to the price at the intraday high of the handle to get the pivot. You'll want to buy if the stock crosses back above that level on heavy volume. If you try to get in when it's more than 5% to 10% above the pivot, the stock price is extended. Your risk of having to sell on the next correction goes up.
Once in a while, a great stock won't form a handle. Instead it surges out of its cup to new highs. In that case, the pivot point is 10 cents above the base's high.
Amazon.com traced the latter pattern. It broke out of a 15-week base the week ended March 21, 2003 1 , the same week as the Nasdaq's confirmation day. The mild 26% decline from the base's high of 25 to a low of 18.43 indicated strong investor demand.
In its breakout the week ended March 21, the profitable online retailer raced 11% from the 25.10 pivot 2 on heavy volume. It pulled back the next four weeks on mostly above-average trade, but it fell short of the huge volume on the breakout week 3 .
In the week ended April 18, Amazon fell as low as 24.13 before rebounding off its 50-day moving average 4 . So if you bought at the pivot, you'd be sitting on a 4% loss — not enough to trigger your sell rule.
Amazon stepped up the pace the next 11 weeks. It saw only two down weeks, one of which closed near the top of its weekly range. The stock then stopped for a breather the weeks ended July 11 and 18. It closed near the bottom of its weekly range both weeks, but on lighter trade than most of the up weeks.
Amazon fell back to its 50-day the week ended July 18, bottoming at 34.79 5 . At this point, you'd still be up 39% from the pivot. Again, no reason to get out. The next week it undercut the 50-day line but shot up to close at a two-year high 6 . It didn't violate the trend line until the week ended Nov. 14, where it started forming the bottom of its current base.

01/18/06 (Wed) “Radvision (RVSN)”
Analysis of IBD ChartAt first glance, Radvision (RVSN) appeared to have pulled back near its 10-week moving average and rallied from there (Point 1). But in fact the stock formed a flat base, even if it didn't look all that flat on its chart. The stock passed three tests to determine it was in a new base. First, it had gone up 26% from its last buy point (Point 2), more than the 20% minimum gain to start a new base. Second, the stock corrected five weeks (Point 3), the minimum length for a flat base. Third, Radvision retreated 10% (Point 4), a range in line with proper flat bases. The stock cleared the base last week. On a daily chart, the flat base may be easier to discern. That's one reason why any chart analysis should include daily and weekly charts.

09/26/05 (Mon) “Google (GOOG)”
Vimpel Communications (VIP) has appeared several times in the daily Stock Analysis, as it's garnered huge gains since the market hit bottom in late 2002. But even after a long run-up, a stock can renew its attractiveness when its base count resets. Vimpel broke out of a five-month base in September 2004 (Point 1). But after reaching an all-time high a few weeks later, Vimpel plummeted 22% in the week ended Dec. 10 (Point 2). That plunge, on the heaviest volume in the stock's history, looked devastating at the time, undercutting the low of its prior base (Point 3). But that undercutting action also set the stock's base count back to zero, meaning a rebound and new base would constitute a first-stage pattern. Indeed, Vimpel etched a new, 5 1/2-month base starting in March of this year, breaking out in August (Point 4). In the last three weeks the stock has consolidated its recent gains, forming a three-weeks-tight pattern (Point 5). Since it didn't rise 20% or more from its prior breakout, this latest consolidation is considered an extension of its first-stage base. IBD studies have shown that earlier-stage bases have a higher success rate than do their late-stage siblings.

09/21/05 (Wed) “Google (GOOG)”
Google (GOOG) gained a reputation as a stock market star even before it went public, the firm's IPO generating huge publicity and speculation. Debuting with an offering price of $85, Google took just a few weeks before racing to new highs, not stopping long enough to form a base. After surging more than twofold to a high above 200 in November, Google started etching a first base. The stock tried to break out in February (Point 1), but quickly pulled back. Google broke out anew in the week ended April 22 of this year, surging 17% in heavy volume (Point 2). Google hit another high of 317.80 in July (Point 3), then dipped into a second-stage base. With the base now eight weeks long, the stock could be forming a handle with a buy point of 315.63 (Point 4). If no handle occurs, the buy point would be 317.90, or 10 cents above the high of the base.

09/08/05 (Thur) “Ventiv (VTIV)”
“When a stock sculpts a handle on a cup, saucer or double-bottom base, several traits separate good handles from bad ones. Is the decline mild, measuring no more than 12% to 15% from the handle's high to low during a bull market? Does it drift lower along the handle’s lows? Is volume nearly non-existent as the handle forms? If you can answer "yes" on all three questions, chances are good that the handle is sound.”

09/07/05 (Wed) “Labor Ready (LRW)”
“If a stock breaks out of a base and moves higher, watch if it makes a gain of at least 20%. That's the minimum advance required before the stock can form a new base. Generally, the more bases a stock has built, the higher chance the next breakout will fizzle.”

08/12/05 (Fri) “Navteq (NVT)”
“When a stock forms a base that undercuts a prior consolidation, that resets its base count back to zero.”

08/29/05 (Monday) “Safeskin Pulled Profit From Innovative Gloves”
After the breakout…”The stock pulled back to the buy point as about 40% of winning stocks do.”

08/25/05 (Thur) “Daily Stock Analysis Delves Into Buy Points”
“If a stock’s buy point is not easily discernible in a price and volume chart, it has probably formed a faulty base.”
“….flat base for a minimum of 5 weeks.”
“The DSA archive (investors.com/dsa/dsaarchive.asp) was recently expanded.”
“The IBD Markets Desk (investors.com/marketsdesk.asp) often references buy points in stocks.”
“Using Charts to Round Out Stock Selection, Part 2 (investors.com/learn/B10A.asp) teaches pattern
recognition and spotting the but point” (see Below for intro to this last URL).

The Most Successful Chart Patterns
Research shows the greatest stock market winners formed one of five basing chart patterns at the beginning of their major price advances or shortly thereafter.
· Cup with handle
· Saucer with handle
· Double bottom
· Flat base
· Ascending base
Studies show most of these basing patterns should form over at least seven or eight weeks; however, the flat base can be as short as five weeks. Typically, the longer the basing period, the stronger the potential price increase. Many bases are up to fifteen months or longer.

11/14/05 (Monday) “Applied Micro Sailed Above 50-Day Average”
“One way to measure whether a stock is having a climax run is to draw an upper trend line connecting at least three points on a weekly chart, with a logarithmic price scale covering at least four months. If the stock pierces the line on the upside, it's time to sell.”
Ascending Base
Question
What defines an ascending base or chart pattern? What are healthy characteristics or flaws to look for in this type of pattern? Where is its pivot point?

Answer
The ascending base pattern is one of the strongest basing patterns. It occurs when the market is moving sideways or trending down. The stock will attempt to move higher while the market remains weak. When the market finally turns around and becomes bullish, the stock often shoots much higher and, since it has been trending higher anyway, is one of the first stocks to hit new highs when the weight of the market comes off. Two excellent examples are AOL and SCH. Between 1/6/99 and 3/3/99, the S&P 500 and Dow moved sideways. Between 2/1/99 and 3/3/99, the Nasdaq trended down. AOL and SCH, on the other hand, kept hitting new highs. AOL hit new highs on 1/11/99, 1/28/99, and 2/23/99. SCH hit new highs on 1/27/99 and 2/22/99. PWER is a more recent example of an ascending base. PWER bucked the downward trend in the market after the NASDAQ topped in March '00. PWER made new highs on 4/6/00, 5/9/00, and 5/31/00. All of these examples had constructive price/volume action in their ascending bases, where strong volume occurred on up days more than a few times. The pivot point in this pattern occurs when the stock makes a new high at the same time the overall markets are looking stronger. You know the overall markets are stronger because they will have a confirmation day, where they are up at least 2 percent on higher volume than the prior day. The Nasdaq, S&P 500 and Dow all confirmed on 2/22/99. You would have bought AOL and SCH on this day. Keep in mind that even though the general market averages have a confirmation day, you should see enough good bases setting up and getting ready to break out. If you don't see enough of these good patterns, then you should invest lightly or not at all.

The “Links” below (to be found in IBD’s Ask IBD Archives) are more articles treating the ascending base pattern.

Summary

1
In an "ascending base," how would one decide whether or not to hold the stock?
2
What defines an ascending base or chart pattern?
3
Where is the buy point for 'ascending' bases?
4
How much fluctuation can a stock have and still be in a base?
5
Can the highest point on the left side of a short base also be the pivot of a much longer base?
6
If a stock breaks out and builds another base, is that a new-stage base?
7
What if a stock fails in its third base and then forms a healthy base?
8
When counting bases, is the first-stage base the first correction AFTER a stock has bottomed?
9
What is the difference between second-stage bases and base-on-base formations?
10
From what point must a stock move 20% prior to building another base?
11
How do you detect a stock's basing period and the start of consolidation?
12
In a base-on-base pattern, what is the minimum length of the second base?
13
Does the downtrend in many leading stocks wipe out any "late stage" base concerns?
14
How far back should one go to start counting bases on a stock chart?
15
Should bases formed under $15 be considered when counting bases?
16
Where is the buy (pivot) point in a flat base?
17
What is a 'base', and how do you identify one?
18
Should I still watch a stock when the base count is reset after a correction?
19
How can I determine if a stock's chart is entering third- or fourth-stage bases?
20
Does a flat base have to occur above the 200-day and 50-day moving averages?

09/13/05 (Tue) “Market’s Follow-Through Could Set Up Breakouts”
“A 15% decline from the bases left peak to bottom is deep enough to qualify for a correction in a cup-shaped base.”

08/22/05 (Mon) Investor’s Corner "Don't Rely On Market Forecasts, Focus On The Market's Action"
..,.. When the indexes log three to five distribution days in four weeks or less, beware. A market top could be near. Faulty bases and a growing trend of failed breakouts among leading stocks can flash warnings. A red flag should also go up if you notice laggards - low-quality, low-priced stocks - making a move. This usually happens as the market starts to run out of steam.

08/04/05 (Thur) Investor’s Corner "Some Bases May Be Very Long, But They're Worth Waiting For"
A typical cup-with-handle-base takes three to six months to form.

The stock should have more weeks of buying (accumulation) than of distribution (selling). And the price swings, at the bottom of the base as well as the left and right sides, should be fairly tight, rather than wide and loose. Ideally, you'd like to see the stock correct no more than 20% to 35% from its peak. But a stock that's already had a big run may drop as much as 50% during a severe bear market.

…A stock that's spent a long time building its base may also take a long time - six to eight weeks, sometimes longer - forming its handle. It should form 5% to 15% below the stock's high and drift downward in light volume. See it as one last shakeout before the stock takes off and makes new highs.

08/03/05 (Wed) Investor’s Corner "Thinly Traded Stocks Challenge Investors With Higher Volatility"
One of the most important facets of IBD's investing method is precision. Buy as close to the buy point as possible. Don't buy more than 5% extended. Add shares only at the right time and in a good market.

Prefer stocks that trade at least 100,000 shares a day. The best stocks, including many in the IBD 100, often have an average volume of 1 million shares, 2 million shares or more. They tend to have fewer wild swings.

07/27/05 (Wed) Investor’s Corner "In Good Double-Bottom Patterns, The 2nd Low Undercuts The 1st"
Smart investors pay close attention to the dimensions of the base, and the double bottom is no exception. As the July 22 column noted, be wary of a pattern in which the middle peak exceeds the highest price on the left side of the base. Such action tends to denote a pair of erratic cup bases, not a solid double bottom.

Another key element of a good double bottom lies in the relationship between the two lows in the base, formed by a pair of sell-offs. In general, the second low should undercut the first low. That doesn't occur with every successful rally from this pattern, but it happens more often than not. A lower second dip indicates a dramatic shakeout of weak shareholders, sending those shares into firmer hands.

You want to see evidence of strong accumulation by mutual funds and other big investors, as well as mild pullbacks on low volume on the right-hand side of the base. As the stock makes its way out of the base, forming the right side of the pattern, it may or may not pull back to form a handle. If it does, then the pivot point is 0.10 point above the high mark in the handle. Ideally, the handle ought to last at least one week and should drift downward with volume drying up. It also should form in the upper half of the base. But a stock can still log nice gains after breaking out of a double-bottom base even if it hasn't bothered to form a handle.

06/13/05 (Mon) "CMGI Rode Internet Bubble Up And Down” – The Smart Investor
http://www.investors.com/ibdarchives/ArtShow.asp?atn=203499392762662&sy=&kw=mass_s_prospectus&ps=9&ac=

CMGI was one of the right stocks. It set up in a 22-week cup-with-handle base that corrected 62%. That's more than most winning stocks. But The Nasdaq corrected 33% during the bear market. A stock should not correct more than 2 1/2 times the general market, so CMGI was within that.

Normally, a stock that goes up more than 20% in three weeks should be held for at least eight weeks.

The base was flawed because the midpoint of the handle was in the lower half of the base.

05/25/05 (Wed) "Cash Flow Provides Key Insights Into A Company's Inner Workings” – Investor’s Corner
http://www.investors.com/ibdarchives/ArtShow.asp?atn=201858940800703&sy=&kw=of_s_the_s_most_s_common_s_items&ps=9&ac=

With growth stocks - and technology companies in particular - you want to see yearly cash flow at least 20% higher than earnings per share.

There are different types of cash flow, but perhaps the one most important to investors is cash flow from operations.

You can find a company's cash flow numbers on some Web sites that offer financial statements. The company's 10-Q or 10-K filings with the SEC also have this data. Daily Graphs Online, a stock charting and screening service offered by IBD's sister company, gives each company's most recent annual cash flow. The table above lists companies building base patterns whose cash flow is well above earnings per share, based on the most recent annual results.

05/24/05 (Tue) “Leading Companies Consistently Post The Biggest Profit Margins ” – Investor’s Corner
http://www.investors.com/ibdarchives/ArtShow.asp?atn=201774579429424&sy=&kw=well,_s_lean_s_anyway&ps=9&ac=

Operating efficiency is quantified in the form of profit margins. If a company has a profit margin of 20%, that means it earned 20 cents for each dollar of revenue. Margins vary from industry to industry. As an investor, you want to seek companies that have the best margins in their respective fields. You can figure a firm's after-tax margin by dividing net income by net sales. Pretax margins are pretax profit divided by sales. You'll want to use use operating income in your calculations. That means no one-time items a company reports.

04/12/05 (Tue) Investor’s Corner "Some Winning Stocks Go Through Double The Shakeout"
Double bottom
You generally want to see that second sell-off, or second bottom of the W, match or undercut the first. That's where you see weak holders really get shaken out. You'll see a number of cases where the second downside leg won't descend below the first sell-off. But it should come close. The breakout can still succeed. The number of weeks on the left side, or the ones leading up to the base's middle peak, should roughly equal those on the other side of the peak. You don't need perfect symmetry - you just want to keep in mind that W shape. So where's the buy point in a double-bottom base? Study the right side of the W where the stock is rising after the second leg down. The time to buy is when the stock exceeds the top of the middle peak of the W by at least 10 cents. Sometimes the double-bottom base will have a handle. In this case, your buy point is 10 cents above the highest price in the handle.

04/8/05 (Fri) Investor’s Corner "Saucer Base Wears Out Investors Ahead Of Its Breakout"
Saucer patterns get their name because they look like a stretched-out, cup-shaped base. They usually appear shallower than a cup, which can correct as much as 50% from the left peak to bottom. But they tend to fall more than the 10% to 15% drop typical of a flat base.

Big-cap stocks with heavy daily trade often shape saucer bases, as the high volume of shares traded makes their price action less volatile.

04/7/05 (Thur) Investor’s Corner "Some Big Winners Need More Time To Etch A Cup Base"
…a short cup with handle ranges from a minimum seven to 13 weeks in length.

Still, expect strong action at the breakout. Just like a short cup-with-handle base, the handle in the long cup should drift gently lower, no more than 12%-15% in a market uptrend. Volume should explode at the breakout.

04/06/05 (Wed) Investor’s Corner "Short Cup-With-Handle Often Leads To Big Stock Gains"
You can spot a cup-with-handle base on a chart by drawing an outline of a teacup and handle (as viewed from the side) around the price movements of a stock. The left side of the cup forms as the stock eases lower. It then rounds out the bottom of the cup and starts to climb back up, ideally in brisk volume. That indicates strong buying by big-money investors, in the process forging the right side of the cup. The final step comes as the stock nears its high. It will then drift lower for at least one week as volume dries up. This final shakeout marks the handle of the base. Cup-with-handle bases can vary widely in length. Some take several months, even a year or two to form. When the market's rocking and a stock is hot, the base can run its course much quicker. A short cup with handle might take seven to 13 weeks to take shape.

04/4/05 (Mon) Investor’s Corner "Wait A Minimum Of Seven Weeks For Stock To Form A Sound Base"
…If you jump the gun, you're usually going to get hit.

There are a few rare exceptions. Check IBD's Investor's Corner column on March 9, 2005 (available at IBD Archives on investors.com) for more detail on those exceptions.

03/30/05 (Wed) "Beware Of Lagging Relative Strength Line At Breakout” – Investor’s Corner
The Relative Strength line helps you gauge how a stock fares by plotting its price performance vs. that of the benchmark S&P 500.

When a stock breaks out and climbs to new highs, you want to see the line rise in tandem, if not earlier. But if the RS line fails to reach new high ground as the stock clears a base, the breakout may not succeed.

The RS line may also help you avoid late-stage breakouts, which tend to be more prone to failure. The line often lags when a stock shows choppy action typically seen during the breakout from a third-, fourth- or even fifth-stage base.

03/28/05 (Mon) "Harman Rode Demand For Upscale Car Radio"
Savvy investors would have noticed another key statistic: The short interest represented 6.7% of average daily volume (Shouldn’t this be “float?”), much higher than most stocks, and it had been rising the previous three months. If the stock breaks out to a new high, the short sellers are all underwater. Eventually, they are forced to buy back their shares at a loss, driving the stock price even higher. It's called a short squeeze.

A good way to get an early position in the stock is to use the shakeout + 3 points rule, first used by legendary trader Jesse Livermore. First, you need a double bottomlike base with two shakeouts, the second undercutting the first. The shakeout + 3 rule says you can buy once the stock recovers 3 points. The rule is designed for stocks in the 20 to 30 range, so use 13% or 14% for higher priced stocks.

One good sell rule is to take profits when the stock spends three straight weeks below the 10-week line (50 DMA).

Its gain over two weeks was 25%, enough to qualify as a climax.

03/24/05 (Thur) "Avoid Stocks That Form Handles Deep Within The Base" – Investor’s Corner
http://www.investors.com/ibdarchives/ArtShow.asp?atn=196501185355356&sy=&kw=32.75,_s_down_s_17_p_&ps=9&ac=

Usually, the handle forms 5% to 15% below the highest price in the base. To gauge that, find the highest point in the base - the spot at which the base began forming. Then find the lowest point of the cup. Calculate the average of those two points. Then find the handle's highest and lowest points, and average those. Is the handle's average higher than the cup's average? If so, you're on the right track. The stock has likely gotten through the overhead supply of potential sellers. But wait, there's more! Make sure the handle forms above the stock's 200-day moving average. If it's lower, there may not be enough demand to push the stock higher after weak holders get shaken out.

Remember, you want the handle forming within the base's upper half.

03/24/05 (Thur) “Look Past Overall Ratings For Hidden Flaws”– The Smart Investor
The Overall Rating blends all five ratings found in the Diagnosis area of Stock Checkup. The ratings are not weighted equally.

Once you've identified a stock with a strong Overall Rating, make sure other ratings in the Diagnosis area, as well as SmartSelect Ratings, confirm the stock's strength.

The Attractiveness Rating in Stock Checkup is the most sensitive to a stock's daily price swings. Stocks can retain high Overall Ratings with laggard Attractiveness Ratings. A stock falling on heavy volume will see its Attractiveness Rating deteriorate quickly. The rating looks at up volume vs. down volume, the stock's price performance against others in its group and the group's performance vs. the S&P 500, among other things.

02/14/05 (Mon) Investor’s Corner "To Find A Good Stock To Short, Look For A Long Series Of Bases"
Many readers have asked IBD: How do you count bases? It's not that hard, so long as you follow clear rules. First, start counting bases only when the stock has gone past $10 a share, either within the base or soon after the breakout. Next, calculate the run-up from the stock's breakout point to its high before the stock declines. Is the gain 30%? (? 20% ?) If so, it's now forming a new base. Base-on-base patterns, generally speaking, count as one base. Why? The upper base usually forms after the stock rises 10%, 15% or 20% above its most recent pivot. Finally, keep in mind a cup base must see a decline of at least 12%.

That more than meets the 30% (? 20% ?) minimum gain required before a new base can form.

04/02/03
How To Find A Pivot Point Lower Than Handle's High
BY JONAH KERI
INVESTOR'S BUSINESS DAILY
Over the past week and a half, this column has showed the ins and outs of handles. To keep things simple, buying at the pivot point - 0.10 above the top of the handle - is the precise way to nail a breakout.
But in some cases, you can take a bolder approach. By drawing a downward trend line across the handle's highs, you can sometimes find a slightly lower pivot point. The same can hold true if you draw a line from the top of the base's left side across the handle's highs.
Why look for a lower pivot? Four out of every 10 stocks retreat to near the pivot after breaking out. The better your buy price, the less chance you have of getting shaken out from a brief correction.
Also, some of the best stocks gap up out of their bases. Even putting in a buy-stop order won't let you get a stock right at its pivot if it gaps above that set price. By grabbing the stock a point earlier, you may gain the entire benefit of a gap-up without fretting over buying the stock well above its pivot.
Before you try this approach, make sure you have as many factors in your favor as possible. Insist on a healthy market to support leading stocks. Survey the stock's fundamental and technical picture. Does the stock sport a top Earnings Per Share Rating? Is revenue growth strong? Also, is the base solid? Is the handle slanting lower, not wedging higher? Did the volume dry up?

CapeFear IBD

Monday, December 8, 2008

IBD Committment by Dave

Sunday, December 7, 2008

IBD Chart Criteria 2008

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