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All,
A great week with U moving up and an unbelievable up move in
AMZN. Those moves were so good that I didn't even mind being stopped
out of MER at a small loss <G>. That left me with stock positions in
AMZN and U, LEAP Calls on CPQ, and still almost 80% cash. As you
know, the large cash position wasn't intentional but resulted from
hitting a few targets and a lot of stops. When this happens I always
check the indices carefully to see if the market is trying to tell me
something. Last week all of the indices I follow were in an
intermediate term up trend. This week the Russell 2000 broke through
the bottom of its Intermediate Term Up Trend Channel (ITUTC). The
rest of the indices are still in their ITUTC, but all are in Short
Term Down Trend Channels (STDTCs). The DJIA is about in the middle of
its ITUTC, the NASDAQ in the lower half, and all the rest in the upper
half. What does this mean? Since I trade the intermediate term
trend, it means to me that I should still be trading long positions,
but I should avoid the small cap stocks. To me that means avoiding
any stock with a market cap less then $500,000,000. It also means
that there is more of a risk that the intermediate term channels might
not hold and I shouldn't be in any hurry to enter new positions.
Finally, since the NASDAQ is closest to the bottom of the ITUTC, it
means that the NASDAQ type stocks may turn back up first. That means
more midcap and tech type stocks.
Thinking about all of this, I decided to look at NASDAQ type
stocks that had breakout type moves this week. From my watch list, I
selected Infoseek Corp (SEEK) and PharMerica Inc (DOSE). SEEK is an
internet stock that develops branded, comprehensive Web-based
navigation services that helps users access and personalize Internet
resources. I use SEEK almost every day. DOSE provides institutional
pharmacy services to long-term care facilities and correctional
institutions. I liked the chart on SEEK a little better, but was
concerned that it was in the same industry group as AMZN although it
has a different niche on the Internet. I was also concerned that any
breakout type stock is further from the bottom of its up trend channel
then I like. I compromised and decided to go with half size positions
in both stocks. This way I can add to the position if it does pull
back to the bottom of the channel, but will still be in for the up
move if it doesn't. Also it will help diversify my portfolio by
adding an industry group that I don't currently have.
DOSE at 12.687 is in a Short Term Up Trend Channel (STUTC) with
the top at 13.62 and the bottom at 11.88. It set an all time high
triple top of 16 in March and April of this year. Then it fell back
to a low of 10.625 on 5/20/98. From there it rose to its current
position breaking out of a STDTC on decent volume Tuesday. My MS Tema
Binary Wave turned positive Thursday and the Tema QStick looks like
its making a negative peak which indicates the start of an up move.
The fundamentals are great with the Price/Sales at 1.03, Debt/Equity
at 0.98, 28% insider ownership, 30% annual revenue growth and triple
digit earnings growth. I'll take a 1/2 size position at Monday's open
with an
initial target at the 16 triple top and a stop under the STUTC at 11
3/4.
SEEK at 30 1/8 is in a STUTC with the top at 32.27 and the bottom
at 27.77. It hit an all time high of 45 on 4/16/98 then pulled back
to a low of 20 1/2 on 5/27/98 which was right on the bottom of its
Long Term Up Trend Channel (LTUTC). From there it moved up to its
current position, breaking out of its STDTC on good volume Thursday.
It continued to move up on good volume Friday. My MS Tema PDI-MDI
reached a negative peak a couple of weeks ago and turned positive
Thursday. Both ADX and MDI have been dropping, but ADX leveled off
Thursday and Friday and will probably turn up Monday. This sure looks
like a classical breakout of a short term down trend after bouncing
off the bottom of a long term up trend. Since this is an internet
stock the fundamentals aren't very good for price/sales at 14.38 and
earnings which are negative. However, for these types of stock I look
for no or low debt, significant insider ownership, and rapidly
growing revenues which we have with a debt/equity of 0.09, 82% insider
ownership and triple digit annual revenue growth. I'll take a 1/2
size position at Monday's open. I'll set my initial target just under
the old high at 44 and my stop just under the short and long term
channels at 21 3/4. I'm hoping that I can move the stop up fairly
rapidly if the stock continues up and the STUTC firms up and gets
steeper.
I'll send DOSE.GIF and SEEK.GIF charts to everyone on my chart
email list. If you aren't on the list and want on, just yell.
Jim
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