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Disappointing Financial Report Results In More Weakness - Friday, February 01, 2008
Many stocks that show signs of deterioration, technically, later begin revealing flaws in their underlying fundamentals which were not apparent at the outset of their technical weakness. This is why technical traders often say that, "The charts don't lie." In the case of today's example, earlier sell signals have been followed by a report of earnings and sales growth below guidelines. As the 50-day moving average (DMA) line and previous chart lows are violated, investors who own any interest in that stock need to be ready to heed any warnings signals that the trend is deteriorating and bears are gaining control.
Abaxis Inc. (ABAX -$2.55 or -9.29% to $30.00) continued pulling back on above average volume, sinking under prior chart lows and falling further below its 50-day moving average (DMA) line. Abaxis fell after the company reported disappointing fourth quarter results. The company said that earnings per share increased by only +8% versus the same quarter in the prior year while sales were up +17%, increases that were below the +25% guideline on both fronts. This high-ranked leader was recently featured in yellow in the October 25, 2007 CANSLIM.net Mid-Day BreakOuts Report (read here) with a $26.10 pivot point and a $27.41 maximum buy price. Over the next few months, the stock surged +53% before topping out in late December. Since then, several technical sell signals were noted as the stock has steadily declined while the major averages got pounded. Based on worrisome technical action, and weak sales and earnings increases it just reported for the quarter ended December 31, 2007, it will be dropped from the Featured Stocks list tonight. The next level of support is this stock's prior chart highs near $26-27 which coincide with its 200 DMA line.
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Strong Leader Closes At A New High - Friday, November 16, 2007
A classic example of the success enjoyed by many CANSLIM.net readers usually starts when an investor reads a CANSLIM.net report and buys a featured stock before it has risen above the pivot point by greater than 5%. After a stock breaks out above its pivot point, there is only a +5% window that investors have to purchase the stock under the proper guidelines. Once a stock rises above the "maximum buy price" the risk of a shake out balloons, meaning that even a normal retracement in the stock might force you to employ the 7-8% loss cutting rule. Much can be told by the stock's daily action in the weeks and months that follow a breakout. Typically, a light volume and orderly pullback suggests that the bulls remain in control. However, high volume pullbacks that violate support paint a totally different picture.
Abaxis Inc. (ABAX +$1.28 or +3.97% to $33.50) rallied to another new all-time high with a gain on above average volume. This high-ranked leader was featured in yellow in the October 25, 2007 CANSLIM.net Mid-Day BreakOuts Report (read here). The report had the following note: "Y - Breaking out of a cup-with-handle type pattern to new all-time highs with gains on heavy volume after its latest earnings report. Earnings were above the +25% guideline in 3 of the 4 most recent comparisons versus the year earlier." It was triggering a technical buy signal by vaulting above its pivot point (the high of its handle) on approximately 6-times normal volume! It quickly rose more than +5% above its pivot point, and didn't pull back, staying above its earlier $27 chart high. Its color code was changed to green on 11/06/07 when additional gains on above average volume pushed it further above the "max buy" level. Remember that some of the stock market's strongest leaders have emerged from a bullish cup-with-handle chart pattern. In the three weeks since the stock was featured it surged an impressive +30%, which is a sign of very impressive relative strength when considering the negative action in the major averages lately.
ABAX sports a very healthy Earnings Per Share (EPS) rating of 92 and a Relative Strength (RS) rating of 96. It resides in the Medical - Systems/Equipment group which is currently ranked 4th of out the 197 industry groups listed in the paper, helping it satisfy the L criteria. Prior chart resistance in the $26-$27 area (its April-October highs) will be likely to act as formidable support going forward. The stock is currently trading above its $27.41 maximum buy price, which makes this high-ranked leader too extended to be considered buyable under the guidelines. Disciplined investors know to avoid buying stocks extended above the maximum buy point, because doing so is considered "chasing" and typically hinders performance. As long as the most recent breakout is not negated with a damaging loss and close back under its prior high closes, it remains in healthy shape. Meanwhile, the market correction is an ongoing concern until we see a follow-through day.
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