Innovative Solutions and Support Inc. (ISSC $18.46) designs, develops, and manufactures flight information computers including Air Data and RVSM Systems and Components, Flat-Panel Displays, and Engine and Fuel Displays. IS&S markets its products to government and military entities and their commercial contractors, aircraft operators, aircraft modification centers and various original equipment manufacturers (OEMs). It is a high-ranked leader in the Aerospace/Defense Equipment group, a group that has shown great volatility in these times of geopolitical uncertainty.

Note that ISSC does lack the good steady annual earnings growth history we'd normally expect to see to satisfy the "A" criteria in CANSLIM.  But there is no problem when it comes to new price highs, and between that and the fact that new federal guidelines require that by December 2004 all jet aircraft that fly at over 29,000 feet must be equipped with expensive RVSM systems, the "N" criteria of CANSLIM seems well satisfied.  Current quarterly earnings have been strong - the company has demonstrated a big surge in sales revenues and earnings growth in its past three quarterly financial reports. In the Sep '03, Dec '03, and Mar '04 reports, sales revenues rose by +40%, +93%, and +53% respectively.  Insiders own an approximately 29% stake in the company's outstanding shares, keeping them motivated to see after the bottom line.

What to Look For and What to Look Out For: The weak market conditions overall are obviously still a major concern, however ISSC has shown bullish chart action providing a very compelling case that institutional money managers are accumulating positions.  It ended today's session well off its highs, so it seems likely that investors might see an opportunity to buy on a pullback towards what should be firm support in the $16-17 range.  In a worst case scenario it should not be held on any decline that goes beyond a 7-8% loss. 

Technical Analysis: Today's breakout action allowed ISSC to clear its prior highs from an approximately 5-month long base with a huge volume swell. Trading totaled 604,000 shares, better than nine times its average daily volume total.  Also, its 5-year Chart resembles a large cup-with-handle and breakout.

by Kenneth J. Gruneisen