Healthy stocks that are within close striking distance of new highs are often great buy candidates for investors to keep on their watch lists, especially when the companies match favorably with all of the investment system's criteria. When a stock is more than -10% off its 52-week high, and if it has violated its 50-day moving average (DMA) line, then the outlook only gets worse and worse as it spends a greater period of time trading deeper under that important short-term average line. By the time a stock's 50 DMA line starts sloping downward it should also be acknowledged that the stock has been struggling for a long while, in which case it might be time to reduce exposure and look for places to put that money to work in stronger buy candidates.
Compass Minerals Inc. (CMP -$0.35 or -0.43% to $80.85) pulled back on below average volume after recently rallying to new 52-week highs above its max buy level. CMP sports strong ranks; its Earnings Per Share (EPS) rating is 93 and Relative Strength (RS) rating is 99. This stock was recently featured on Tuesday, June 3, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $76.39 pivot point and a $80.21 maximum buy price and the following note: "Y - Gain with volume running at an above average pace today for a new all-time high, rising from a 6-week base that included a bounce near its 50 DMA line. Showed solid sales and earnings increases in the 2 latest quarterly comparisons after 4 prior lackluster reports, yet it has a good annual earnings history (good A criteria). The stock blasted higher, then the company reported strong quarterly results after its 2/11/08 strong close. Gapped up for new all-time highs on 2/12/08, and that afternoon also upped its quarterly dividend."
CMP posted gains after its breakout that lifted it above its pivot point by more than +5% so its color code in CANSLIM.net reports was changed from yellow to green. As long as it continues trading above its recent pivot point and prior chart highs it remains in healthy shape and may deserve the benefit of the doubt. Disciplined investors stick to buying stocks within the investment system's guidelines and remember to always limit losses per the 7-8% sell rule.
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