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.
New Oriental Education & Technology Group (EDU -$3.89) or -5.34% to $76.70) sliced below its 50-day moving average (DMA) line on Wednesday, raising concerns withn its second loss on above average volume in the past 3 sessions. It has been tracing out a three month base. EDU suffered its latest distribution day and is still trading above its multi month upward trendline which means that the longer term bullish stance remains intact. This stock was first featured on Monday, September 24, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $59.77 pivot point and $62.76 maximum buy price. New Oriental Education & Technology sports a very healthy Earnings Per Share (EPS) rating of 97 and an equally impressive Relative Strength (RS) rating of 98. EDU resides in the Commercial Services schools group which is currently ranked 10th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile (satisfying the L criteria). The number of top-rated funds with an ownership interest has increased from 28 funds in December ‘06 to 58 funds as of September '07, a compelling sign of increasing institutional interest (the I criteria). As long as this longer term upward trendline is not negated, odds favor that further highs will follow.
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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.
New Oriental Education & Technology Group (EDU +$3.09 or +4.87% to $66.56) continued marching into new high territory on above average volume after recently triggering a technical buy signal. Disciplined investors know to avoid chasing extended stocks. This stock was first featured on Monday, September 24, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $59.77 pivot point and $62.76 maximum buy price. New Oriental Education & Technology sports a very healthy Earnings Per Share (EPS) rating of 97 and an equally impressive Relative Strength (RS) rating of 97. EDU resides in the Commercial Services- schools group which is currently ranked 12th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile (satisfying the L criteria). The number of top-rated funds with an ownership interest has increased from 22 funds in September ‘06 to 40 funds as of June '07, a compelling sign of increasing institutional interest (the "I" criteria). The prior chart resistance in the $59-60 are is now a key chart support level. As long as this breakout is not negated, odds favor that further highs will follow.
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