SXCI: Position Trade

I like SXCI here as a position trade. It had a nice breakout late last year, and has pulled back to trendline support. SXCI also has relative strength and volume to confirm the move. I'm trying to bid around $19.50 for an initial position. If I can't get hit I'll probably up my bid because I really like the chart on this thing.

SXC Health Solutions Corp (SXCI)

Alaska Air

ALK continues to outperform both the S&P and the Airline Index. On a down day it was actually up 3%. I have ben long the Airlines for a while now and it has been working nicely. ALK looks good for a position trade. Trading above 50 and 150 DMA's and as I stated before showing good relative strength.

Gold

A look back at where Gold started coming into play and a possible long term breakout.

Update on the XAL

As I have been mentioning in previous posts, the XAL is the industry group that is best positioned for a position trade. Below is an updated chart. As you can see, we have had a pullback but it is still above it's trendline. It's relative strength has also pulled back but longer term it is also trending up.

One of the compaines inside the XAL that is holding up well is AAI. Keep an eye on it as well as the rest of the industry.

Relative Strength

This is a comparison from a presentation I did recently. You can see that the QQQQ's are outperforming the broader market. At the same time Consumer Staples (XLP) have been coincident with the S&P. Investors are bidding up higher Beta stocks, showing their increased appetite for risk.

Created using TeleChart

Update on AAI

I highlighted Airtran as one of the airlines I liked for a long term position trade. Since that time the AMEX Airline Index (XAL) has declined over 25%. AAI however has held up nicely. In the lower part of the chart I plotted AAI against the Airline Index. You can see how well it has held up. over the recent decline.

AAI is consolidating around $4.00 and now looks like a good time to open up a partial position.

Bullish on the Airlines

Over the past few months there have been very few bright spots in the market. The broader market averages look like they are trying to bottom, but it will likely many months ( I'm guessing the second half of this year) before we will see a tradable rally in them. The Airline Industry is one of the few Industry groups however that looks like it wants to rally first. The first thing to look at is it's 150 day moving average. It flattened out over the last couple of months of last year and has started to trend up. Also, the XAL Index has also held up well against the S&P. It''s Relative Strength line is plotted out on the chart below. Higher highs and higher lows over the last few months have also been encouraging.

If we believe the Airline Industry is going to rally before the rest of the market, then the next step is to identify the stocks in this industry that will perform the best. Below is a list of 19 publicly traded airlines, sorted by their 3 month performance.

Out of this list, I found a few individual airlines that look the best.

First is SkyWest (SKYW). The first thing to note about this stock is it's increasing relative strength. It has been increasing since last July and held up well through the downturn in the last half of last year. It looks like made a higher low on the 27th, holding above it's 150 day moving average (which has started to trend up bullishly). Note a strong resistance level around $20, which dates back to 2003. A break above this level would be very bullish.


Airtran (AAI), Continental Airlines (CAL), and Alaska Air (ALK) are all the same story. Improving relative strength, a flattening out of their moving averages, as well as higher highs and lows since last summer.

Airtran (AAI)

Continental Airlines (CAL)



Alaska Air (ALK)

Over the next few months we may find the other Airlines will start to stand out above their peers. I encourage to look into all the Airlines I posted and find the ones you think are the best. The action we are seeing in this Industry group however should give us confidence that some of these names should rally well before the broader market does.

Long Term Trades (Part 2)

In this second part of my Long Term Trades post, I decided to look at DNR. As I said in my first post, I'm looking back at some charts to see where I would have gotten in and where I would have exited. Although I usually use much more than what is shown on the chart, it is a good way to demonstrate that simple indicators such as moving averages are one of the most useful indicators.

Like the stock in my last post, DNR consolidated for about a year before breaking out in April of 2007. It broke out above it's downtrending resistance line (green line), as well as it's trading range (orange lines) that had contained the stock's price for previous 9 months. Looking at the moving averages we can see that they flattened out during the consolidation, and actually started to trend down for a few months. On the breakout, the 40 week moving average was flat while the 30 week was starting to trend up. You could have safely entered the trade at $16, with a stop a little below the breakout level.

The moving averges genneraly held the trend over the next year and a half. There were two times over the period that price put in a wick below the 40 week moving average, but a stop a little bit below the the moving average should have kept you in for most of the move. If you were worried about your position on these violations of the moving average, you could have looked at the relative strength and seen that it was still trending up nicely.

In July of 2008 DNR finnaly broke down, closing the week below it's long term moving averages. Exiting the position at a price of $28 a share would have given you about a 75% gain over the holding period.

Long Term Charts (Part 1)

I was looking over some older charts this weekend, and look for places that I might have entered and might have sold. I looked at these charts using very simple technical analysis. I used 150 and 200 day moving averages, as well as support and resistance lines. I also highlighted Relative Strength in one instance. This is a good demonstration to someone who is new to technical analysis. It shows that even though support, resistance, and moving averages are the most basic of the approach, they are also the most important. Note that when I trade I'm looking at a lot of other things, this is just a demonstration.

The chart below is of CEDC. Notice how after an extended uptrend ( some of which was cut off to the left of the chart) it consolidated for about a year. The moving averages started trending down and price bounced off of it's declining trendline multiple times. Finally in October of 2006 it broke out and ran to about $30. Those who were not convinced about the initial breakout could have waited for a pullback that happened in March of 2007. You could have entered anywhere around $25-$28 range, with a tight stop at $24. This pullback was supported not only by it's previous resistance line, but also it's upward sloping moving averages. You would have easily caught a double over the next year or so. The moving averages started to flatten out around August of 2008, at which point price violated it's moving averages by quite a bit. Even if you didn't get out until price fell to $55, you would still have a nice gain on your hands.

Looking at a Gold Miner

A couple of weeks ago I made a post stating that I think the price of Gold was heading lower. Gold did break below support, but then quickly rebounded and headed back up towards the high end of it's range. This made me rethink my stance on Gold. It's important to realize when your wrong (or possibly to early). I still think Gold could breakdown below support, which I pointed out on January 7th, but at this point I decided the better play would be to look for some long positions in gold miners. Below is a chart from Finviz (a great site by the way) that shows the performance of Gold related stocks.

They had a nice move up from their November lows, consolidated, and now look poised to move higher. A few of the better are now above their 150 day MA. One of the smaller ones i'm folling is DRD Gold Limited. It has a nice level of resistance that was prior support late last summer. From the middle of November to the middle of December DROOY had a nice move up, then consolidated right under resistance. Look for a breakout on increased volume.

DROOY

Watch CECO for a Long Term Breakout

I'll be keeping an eye on CECO in the coming days to see if it can breakout of a year long basing pattern. A couple of important things have been happening in this stock. First, the 150 day moving average, which CECO is trading above, has stopped declining and has flattened out. Next, the Relative Strength has been on the rise since about April of 2008. The last thing I noticed was the big increase in volume today. It traded 4.4 million shares today, while the average over the past 4 weeks has been 1.3 million. It is important to wait for a follow through on price and conformation in volume. This stock tried to break out in September 0f 2008 on above average volume, but failed as price did not follow through. If CECO continues to rally through resistance on strong volume I'll be looking to enter a long position.

While I generally just focus on technicals, I will note when a stock's general fundamental story lines up. While none of the basic fundamentals (such as P/E, PEG) look all the great (except for debt levels), the industry that CECO operates in is a good one. The education services industry has been an outperformer over the past year. As employees lose their job, many are motivated to go to technical schools that offer degrees in a short amount of time. This is the exact business that CECO is in.

With both the technicals and fundamentals lining up, I would be a buyer if CECO does follow through on the breakout.

Career Education Corp (CECO)

Review of Sam Weinstein's Book

Sam Weinstein's book Secrets for Profiting in Bull and Bear Markets is probably the best book a beginner could buy. Weinstein outlines the basic price structure of stocks; support, resistance, and moving averages. He also explains in great detail the four stages of a stock; Stage one base, Stage two uptrend, Stage three top, and Stage four decline. These basic principles are essential for a beginning trader to make money in the stock market. He gives multiple examples for everything he talks about and gives charts of many of his past trades.

The two things Sam focuses on the most are how to identify the companies that are poised to breakout, and how to get into and out of the trade. He also discusses in lesser detail some well known chart paterns such as Head and Shoulders, Double Top, etc. While these things can be profitable to trade, it won't matter one bit if you don't under stand what stage a stock is in. The basic priciples that are covered in this book are very important to profiting in the stock market.

The book was written in the late 80's, but these basic priciples still apply today. You will probably notice as you surf through different trading blogs that this book continually appears on people's sites. That is because this book was important to these traders when they were first starting out.

I've included a link to the book on Amazon on my main page. It's on the right hand side about half way down the page. I would urge you to go ahead and read the reviews others have written. You can purchase the book for under $10, so dollar for dollar, this is probably the best book you could buy.

Advance Decline Index shaping Up

I thought this was an interesting thing to think about. The Advance Decline Index has continued to improve over the past few weeks. We haven't seen the index this high since the huge decline in October.