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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.

Flowserve Corp. (FLS DOWN -$15.09 or -15.16% to $114.65) triggered technical sell signals as it violated its 50 DMA line and a well defined multi-month upward trendline with a considerable loss on above average volume. FLS still sports strong ranks; its Earnings Per Share (EPS) rating is 96 and Relative Strength (RS) rating is 97. This stock was first featured on Thursday, February 28, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $102.84 pivot point and a $107.98 maximum buy price and the following note: "Y - Gain on above average volume today for a new all-time high after its latest strong earnings report for the quarter ended Dec 31, 2007. It has a history of strong quarterly earnings and sales revenues increases. Recently crept quietly to new highs from a choppy base-on-base type pattern."  It found great support near its 50 DMA line after it was featured, and subsequent bullish gaps up were indications of institutional buying demand. Disciplined investors stick to buying stocks within the investment system's guidelines and then always stand ready to take swift action whenever they see a definitive technical sell signal.  

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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.