A very important technical tool that savvy investors have learned to incorporate in their technical analysis is the 50-day moving average (DMA) line. 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. Healthy stocks sometimes trade under their 50 DMA lines briefly, but usually a strong candidate will promptly bounce and repair a 50 DMA violation. When a stock has violated its 50 DMA line and then lingers beneath it, the stock's outlook gets worse and worse as it spends a greater period of time trading under that important short-term average line. Once the 50 DMA line starts sloping downward it should also be acknowledged that the stock has been struggling for a while, and it might be time to reduce exposure and look for places to put that money to work in stronger buy candidates.
CIRCOR International Inc. (CIR +$3.38 or +7.01% to $44.81) rallied for a considerable gain on above average volume and reached a new all-time high intra-day. That was a bullish sign after recently finding prompt support near its prior chart highs and its 50 DMA line. The company reported solid second quarter results after the close on Wednesday, August 1st, 2007, showing an increase in its earnings per share by +57% in the latest quarter versus the same period in the prior year. CIR was first featured on June 19, 2007 in a CANSLIM.net Stock Bulletin (read here) with a $39.20 pivot point and a $41.16 maximum buy price. Three days before that report was published, the stock had gapped up for a considerable gain, yet it was still featured while trading within close range of its pivot point. During the recent dip it did not even fall -1% below its pivot point, and CIR presently sports a healthy Earnings Per Share (EPS) rating of 90 and a solid Relative Strength (RS) rating of 87. The company has managed to increase its earnings per share by above the +25% guideline in each of the past four quarterly comparisons versus the year earlier. CIR resides in the Machinery - general industrial services group which is currently ranked 16th out of the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile and satisfying the "L" criteria.
After CIR broke out, like 40% of winning stocks typically will do, the stock pulled back to retest its pivot point. It is still in fine shape for anyone who might have bought the stock earlier, when it was within 5% of its pivot point, but it is too extended above the pivot point to be considered buyable under the proper guidelines. It is of importance to wait for a proper base to form, then to watch for a proper new buy signal to be triggered before taking any new positions or adding.
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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.
CIRCOR International Inc. (CIR +$1.13 or +2.46% to $44.84) jumped to a new all-time high on Monday with a gain on average volume and closed +14% above its pivot point, continuing its recent very healthy post-breakout action. This stock was first featured on June 19, 2007 in a CANSLIM.net Stock Bulletin (read here) with a $39.20 pivot point and a $41.16 maximum buy price. Three days before that report was published, the stock gapped up for a considerable gain, yet it was still featured while trading within close range of its pivot point. It has hardly pulled back since. CIR presently sports a healthy Earnings Per Share (EPS) rating of 89 and a healthy Relative Strength (RS) rating of 84. The company has managed to increase its earnings per share by above the +25% guideline in each of the past three quarterly comparisons versus the year earlier. CIR resides in the Machinery - general industrial services group which is currently ranked 7th out of the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile and satisfying the "L" criteria.
CIR is in fine shape for anyone who might have bought the stock earlier, when it was within 5% of its pivot point, but it now is too extended above the pivot point to be considered buyable under the proper guidelines. Therefore, it is of importance to wait for a new base to form, then to watch for a proper new buy signal to be triggered, before taking any new positions or adding. This could occur after a light volume pullback toward its 50-day moving average (DMA) line, always an important support level for chart readers. As long as it remains trading above its 50 DMA, odds favor it making further progress.
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