Longstanding readers of this section in the CANSLIM.net After Market Report are well versed on the importance of upward trendlines. It is also important to note how stocks behave after an upward trendline is violated. By definition, an upward trendline develops when a stock has steadily appreciated for an extended period of time. During that period the stock vacillates between the lower and upper boundary of the trendline. However, once the bears show up and the lower trendline is violated, then odds start favoring the possibility of further downside testing.
Atlas America Inc. (ATLS -$0.50 or -1.10% to $45.12) closed lower today on very light volume as it continues to linger above support offered by its 50-day and 200-day moving average (DMA) lines. This stock was first featured on Monday, August 1st, 2005 in the CANSLIM.net Mid Day Breakouts Report (read here) $29.33 (split adjusted). More recently, as the market averages turned negative in mid-May, this stock also consolidated after its previous advance. A more detailed analysis last appeared in the July 31, 2006 CANSLIM.net After-Market Report as it was bouncing back from a test near its longer term 2-year upward trendline which was shown on an annotated weekly graph from DailyGraphs(R) (read here). For the past several weeks this stock has been quietly fallling back towards its key moving averages and longer term upward trendline. Furthermore, it is has been encouraging to see volume dry up in recent weeks, as typically one would like to see volume swell when the underlying investment advances, and see volume recede as the stock declines.
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Longstanding readers of this section in the CANSLIM.net After Market Report are well versed on the importance of upward trendlines. It is also important to note how stocks behave after an upward trendline is violated. By definition, an upward trendline develops when a stock has steadily appreciated for an extended period of time. During that period the stock vacillates between the lower and upper boundary of the trendline. However, once the bears show up and the lower trendline is violated, then odds start favoring the possibility of further downside testing.
Atlas America Inc. (ATLS 0.48 or 1.05% to $45.36) closed higher today on about average volume, and it still faces resiatance due to overhead supply up to the $53 range. This stock was featured on Monday, August 1st, 2005 in the CANSLIM.net Mid Day Breakouts Report (read here) at $29.33 (split adjusted). After making some initial gains, a steep sell-off in October led to a 50 DMA violation which took weeks to repair; however, it then blasted to new highs on heavy volume all over again and it has traded an impressive +64% above the price when it was featured. On May 15th, 2006, in the CANSLIM.net's After Market Market Report, we noted (read here) that ATLS was pulling back and testing its longer term uptrend while it was struggling near its 50 DMA. Shortly thereafter this stock sliced through that important level and spent a couple of months pulling that gauge lower. However, in the last week of July this stock jumped back above its 50 DMA.
A closer look at this stock's monthly chart reveals that since ATLS started trading in May 2004 it has steadily advanced and traced out a very well defined two-year upward trendline. The low of this month (near $40) tested the lower boundary of its trendline. As long as this stock remains above this trendline, odds favor neutral to bullish action prevailing. A more severe violation of that trendline would be a sign of technical deterioration.
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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. Additionally, readers of this column have learned to incorporate the 50-day moving average (DMA) line in their technical analysis. The 50 DMA line plays a pivotal role relative to a stock's price. If the price of a stock is above its 50 DMA then odds are that its 50 DMA will act as formidable support. Conversely, if the price is below its 50 DMA then the moving average acts as resistance.
Atlas America Inc. (ATLS +$1.05 or +2.49% to $41.16) closed higher today on below average volume, but it remains under its 50 DMA line and just below its longer-term 200 DMA. This stock was featured on Monday, August 1st, 2005 in the CANSLIM.net Mid Day Breakouts Report (read here) at $29.33 (split adjusted). After making some initial gains, a steep sell-off in October led to a 50 DMA violation which took weeks to repair; however, it then blasted to new highs on heavy volume all over again and it has traded an impressive +64% above the price when it was featured. On May 15th, 2006, in the CANSLIM.net's After Market Market Report, we noted (read here) that ATLS was pulling back and testing its longer term uptrend while it was struggling near its 50 DMA. That report warned investors, while the stock was still trading at $48.20, to watch out for additional sell signals as a clue to lock in any profits. In the days that followed, this issue fell below important technical support (lower boundary of its trendline). Ignoring such critical sell signals (violation of its 50 DMA, and then a breach of its lower boundary) makes it very difficult to achieve outstanding results. While this stock clings to support of its 200 DMA line, further deterioration should probably not be tolerated.
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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.
Atlas America Inc. (ATLS +0.94 or +1.91% to $48.20) positively reversed today on above average volume as it found support at its longer term upward trendline. This stock was featured on Monday, August 1st, 2005 in the CANSLIM.net Mid-Day BreakOuts Report (read here) at $29.33 (split adjusted) and has rallied an impressive +64% since. Savvy investors have learned to incorporate the use of daily, weekly and monthly charts in their stock analysis. ATLS is currently trading under its 50-day moving average (DMA) line and recently survived downside testing near an upward trendline that extends back to the lows made in May 2005. This is best viewed on a weekly chart.
As you see in the annotated DailyGraph(R) below, ATLS literally bounced off its upward trendline and found support, just as it did three weeks earlier. It fought to stay in close range of its 50 DMA line, which is encouraging. Also, its weekly chart does not show worrisome characteristics such as more down weeks on higher than average volume versus up weeks on big volume (see circled area). As long as this issue continues trading above the support offered by its longer term upward trendline, odds favor that further gains are still likely. However, losses on heavier than average volume leading to a violation of support at that trendline would prompt greater concern and technically be considered sell signals. Obviously, much of the action that follows will be dictated by the overall action in energy related stocks.
Volume is a vital component of technical analysis. Volume is a great proxy for institutional sponsorship, and to be buyable under the proper guidelines a breakout must occur with a minimum of at least +50% above average volume, ideally even more. Conversely, high volume declines can be an ominous sign, as they usually signal distribution and a hint that further price deterioration is more likely to follow. 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.
Atlas America Inc. (ATLS +$1.65 or 3.33% to $51.25) blasted out of a 3-month flat base today on more than double its daily average volume. The stock cleared a new pivot point of $50.08, thus it will again be color coded yellow, and it would be considered a proper buy candidate up to 5% above the pivot or $52.58. As always, it is wise to limit losses at 7-8% in the event of a downturn per the usual CAN SLIM(TM) sell discipline.
There were no news headlines, only solid gains from the Oil & Gas - US Exploration group helping to underpin the stock's technical breakout and convincing move into new all-time high territory. This underscores the importance of choosing companies in a leading industry group (the "L" criteria). The most recent time ATLS was prominently featured in this "Featured Stock Update" section was on February 27th, 2006 as it was blasting back above its 50-day moving average (DMA) line with gains on heavy volume (read here). ATLS is now up +74.72% since it was first featured on August 1st, 2005 in the CANSLIM.net Mid-Day BreakOuts Report (read here).
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.
Atlas America Inc. (ATLS +$1.36 or +2.25% to $59.18) was first featured on August 1st, 2005 in the CANSLIM.net Mid-Day Breakouts Report (read here) as it was emerging from a solid base. This stock spent the next two months building a new base without ever negating its breakout. On November 21st, 2005 this leader gapped out of its base-on-base pattern and raced to new all time highs. The daily, weekly and monthly charts all look good. However, since the stock is extended beyond the guidelines, it wouldn't be considered now as a proper buy by disciplined investors. The prior chart highs (September 19th $52.71 intra-day and $50.90 close) would be the next key support level to watch if there were a break of its steep short-term upward trend.
