An upward trendline, by definition, develops as a stock steadily appreciates over an extended period of time. During that period, the stock vacillates between the lower and upper boundaries of trendlines which can be drawn connecting a series of recent highs or lows. In order to ensure the overall health of the stock, the lower boundary should not be violated. Technically, if the lower boundary is violated, this signals that the trend is deteriorating and bears are gaining control, making the odds start to favor the possibility of further downside testing.
Amedisys Inc. (AMED -$1.11 or -2.67% to $42.63) fell again on above average volume, raising more concerns while technically continuing to deteriorate under its 50-day moving average (DMA) line. After its 50 DMA line breach, that important short-term moving average has acted as resistance. AMED still sports a very strong Earnings Per Share (EPS) rating of 91 and a very impressive Relative Strength (RS) rating of 93. The number of top-rated funds owning an interest rose from 101 in March '07 to 142 in Dec '07, which shows a healthy increase in institutional demand (the I criteria). However, its Accumulation/Distribution rating has fallen to a D+ after a number of recent losses on above average volume, which are signs of institutional selling pressure.
This stock needs to repair the recent 50 DMA violation for its outlook to improve. As it bears down on previous chart lows, its 200 DMA line and prior chart highs in the $40 area are its next critical support levels.
AMED was first featured on the Tuesday, June 22, 2004 edition of CANSLIM.net's Mid Day Breakouts Report (read here) at $22.77 (split adjusted). The stock enjoyed steady gains for most of 2004 and 2005 before a sharp sell off in the first quarter of 2006 took the wind out of this stock's sails. The stock then spent over a year building a new base until it was recently featured again in yellow in Featured Stock Update table in the October 31, 2007 CANSLIM.net After Market Report with a $40.59 pivot point and a $42.62 maximum buy price (read here). An annotated graph was included in the November 13th, 2007 edition of the CANSLIM.net After Market Report (read here) as it rallied above its max buy level. The stock rallied another +14% higher before it was dragged lower as the major averages fell into a correction.C A N S L I M | StockTalk | News | Chart | SEC | Zacks Reports |
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Volume is a vital component of technical analysis. Prudent investors that incorporate volume into their stock analysis have often benefited several fold. Ideally, healthy stocks will more often tend to rise on higher volume and pullback on lighter volume. Volume is a great proxy for institutional sponsorship. Conversely, high volume declines can be ominous, as this usually signals distribution and further price deterioration are more likely to follow.
Amedisys Inc. (AMED +$1.51 or +3.56% to $43.87) is a great example of how a healthy stock acts after a breakout triggers a technial buy signal. Two weeks ago, AMED experienced a break-away gap after reporting healthy third quarter results. The company managed to increase earnings by +27% versus the same quarter last year while sales jumped +32%. This high-ranked leader gapped up and hit a fresh all time high on October 30th, 2007, and it was featured once again in yellow in the October 31st, 2007 edition of the CANSLIM.net After Market Report (read here) with a $40.59 pivot point and a $42.62 maximum buy price. Its healthy action has been noted in the Featured Stocks Update table of each evening's CANSLIM.net Afrter Market Update on an ongoing basis since, while pulling back on light volume to retest suport near its pivot point and prior chart highs. Its light volume consolidation above chart support at prior resistance in the $40 area was very encouraging. Its Relative Strength (RS) rating improved as it stubbornly held its gains last week while the major averages, and a slew of leading stocks, plunged.
AMED was first featured on the Tuesday, June 22, 2004 edition of CANSLIM.net's Mid Day Breakouts Report (read here) at $22.77 (split adjusted). The stock enjoyed steady gains for most of 2004 and 2005 before a sharp sell off in the first quarter of 2006 took the wind out of this stock's sails. The stock spent over a year building a new base until it was recently featured last month. The bulls remain in control as long as AMED continues trading above $40, which is near its prior chart highs and has now become support. If that level is broken expect the 50 DMA line to serve as this stock's next level of support.
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The Monday December 12, 2005 edition of CANSLIM.net After Market Report showed an example of a stock that had recently violated its upward trendline (read here). An upward trendline, by definition, develops as a stock steadily appreciates over an extended period of time. During that period the stock vacillates between the lower and upper boundaries of trendlines which can be drawn connecting a series of recent highs or lows. In order to ensure the overall health of the stock, the lower boundary should not be violated. Technically, if the lower boundary is violated this signals that the trend is deteriorating and bears are gaining control, making the odds start to favor the possibility of further downside testing.
Amedisys Inc. (AMED -$1.60 or -3.50% to $44.12) closed exactly on the lower boundary of its upward trendline on Thursday. Volume, which is a key indicator of institutional support, was about average. Ideally, one would like to see volume total dry up as the stock pulls back and see volume swell as the stock advances. AMED closed $0.04 above its low on Thursday and at a critical testing point. The bulls need to quickly show up and quell the bearish action, otherwise, if there is a technical violation, further downside testing is more likely.
Amedisys Inc. (AMED -1.35 or -3.79% to $34.26) lost nearly -4% on Monday on about 4 times normal trading turnover. This fallen leader provides another good example of the importance of buying on fundamentals and technicals, but selling on technicals. Usually, when a stock starts deteriorating, you can spot a number of earlier technical "sell signals" well before a more serious breakdown occurs. In this case, one of the first technical sell signals was when the stock gapped down on August 29th, suffering a considerable loss on above average volume. The next sign of weakness that should have prompted concern was when it sliced under its 50 DMA on September 6th, 2005, and on that day we focused on it in greater detail along with including an annotated chart in this "Featured Stocks Update" section (see here). Notice how each subsequent rally ran into resistance and formed a "lower high", and then it continued its downward journey to even lower lows.
On Monday this issue violated two critical technical levels and volume grew apace. The first critical level that was violated was its prior chart highs in the $35 area, as ideally this old resistance area should act as a chart support level. The second key technical level that was breached was its longer term 200-day moving average (DMA) line. The only good news for anyone who may still own AMED is that the shares today appeared to be finding support as the price reversed somewhat impressively from the intra-day lows and managed to rally up in the afternoon, closing in the middles of the day's range rather than at the day's worst level. It also ended a few cents above its 200 DMA. Further losses on heavy volume in the near term probably wouldn't be wise to tolerate. Meanwhile, only a prompt rebound and gains lifting it back above the $35 range on higher volume would really improve the outlook, but it will still face resistance and now need to work up through several months worth of overhead supply.
Amedisys Inc (AMED -$1.03, or -2.60% to $38.55) was recently featured in the July 2005 monthly edition of CANSLIM.net News (read here) as it was breaking out of an 8-month base on 6 times average volume. Last week the stock managed to find support at its 50-day moving average line, however, today prices fell under the 50 DMA while trading volume was near average levels. It is negative to see a stock pierce support at its short-term average, and the negativity is compounded when such a violation occurs as the major indices show the overall market moving higher. It is important to note that 3 out 4 stocks follow the direction of the major indices.
Since breaking above its $35.69 pivot point AMED rallied +25% over the next several weeks. Further losses beyond its July low closes and actual lows in the $37 range would be cause for greater concern, especially if the losses occur on higher than average volume indicative of insitutional distribution. Prior chart highs in the $35-36 range would then be the next important chart support, and as this issue quickly approaches its June 30 breakout, greater caution would certainly be warranted if it trades below its prior pivot point. Such deterioration would mean that its most recent breakout has technically been negated.
