07/11/03 | 1:51PM

Boston Communications Group, Inc. (BCGI) is a high-ranked leader in the group of Telecom-Wireless Services stocks, of which there are other leaders showing confirming strength including Nextel Communications (NXTL).  We've pointed out the 4/6 date when an alert was first published on the company, and you'll notice the 4/17 gap up and 5/09 gap down on the chart.  Later, volume driven gains on 6/18 and 6/19 allowed it to break above a two-month downward trend line (see orange line).  

In the July issue of CANSLIM.net News under "What to Look for and What to Look Out For" the 50-day moving average line (then at $16.84) was mentioned as important support to watch, while we also pointed out the stock's high level of short interest.  It held up well from that point and always closed above that important short-term technical trend line.  

This has become a classic short squeeze, and no longer is this wave of panic buying by investors betting on a decline a hypothetical scenario.  We can also attribute this latest high-volume breakout to institutional buying, which has allowed it clear previous chart highs in the $20 range.   

IMPORTANT: Be sure to have a look at its longer-term 5-Year chart to see why prior highs near $29 may now serve as the next logical resistance point one might set as a likely target price on the upside. You'll also notice how nicely it found support during the latest pullback near $14-15 (see lower green line) where in December '02 it ran into resistance.  If one is willing to pay 5% above the April 21st high, buying at much more than $21 is pressing the limits of the normal guideline.  Patience may allow for an even more attractive purchase on any low volume price dips into the lower $18-19 range. 

Shares Outstanding - 18.1 Million  | 50-Day Avg Vol - 1,033,800 | Prior 2 Quarterly earnings % Change: +600%;+600%

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Update: 07/17/03 9:35AM
BCGI gapped down this morning on a news release from Reuters found here -> http://biz.yahoo.com/rc/030716/telecoms_bostoncomms_earns_7.html

At this point the stock is slumping toward the low range of prior key support at around $14, although it did trade as low as $13.22, and already more than six times average daily volume. 

We have seen quick meltdowns numerous times before in recent years, and when it happens you need to be able to move on.  Those who adhere very strictly to the selling rules of CANSLIM should already have sold, or they are definitely looking to.  BCGI does have a lot of short interest, and as previously noted that may help prop the stock up.  Assuming many of those short will buy back to cover their positions and take advantage of this weakness, there is certainly a chance of some price improvement that might offer anyone still holding a better exit point in the short term.  However, it is very hard to be optimistic, as this is probably the worst smack we have seen a CANSLIM favorite take in months.

Of course, some brokerage firms will also downgrade the stock and "pile on" to the story, not helping matters.  Consider that these brokerage firms are probably motivated by publicity and/or financial interest for doing so. 

A few interesting points of the news release were spotted by Kenneth Gruneisen.  His remarks were, "This is a very curiously timed news story on BCGI, coming the night after a new high close. Something about this situation smells almost reminiscent of the old Emulex news hoax, which I happen to have been re-reading about last night.  I'll only emphasize that the story as I read it said that Verizon wants Boston Communications to help it test an in-house system next year, and that their present contract is in negotiations.  There are potential outcomes that could be positive for the company."

Investors with stop losses, if they didn't already know, have now seen a clear example of how even a stop loss can't 100% guarantee you'll be able to limit you loss as precisely as one would like to.  Gruneisen said, "When talking about CANSLIM investing we get a lot of folks asking about investing in options.  Options may offer one way to limit losses more precisely, as a put contract could be bought on a position to cover your interest below a certain strike price.  Of course, that 'insurance' can get expensive, because you'll pay premiums and a lot of times see the options expire worthless."