Statistically, about 40% of winning stocks will pull back after breaking out. In other words, it is not uncommon for stocks to pullback and retest support near their pivot point after breaking out. It is important to see the bulls show up and offer support at or above the pivot point. This may offer investors a chance to increase their exposure before the stock continues advancing. However, an important caveat is that volume should contract as the stock pulls back towards its pivot point. Heavy volume behind losses can be cause for concern, especially if the stock does not find support at its pivot point. Whenever a recent breakout is completely negated by a loss that leads to a close back in the prior base, this is construed as a technical sell signal and a sign that the bears are regaining control.
Guess? Inc. (GES -$0.02 or -0.04% to $54.03) traded down toward its prior chart highs and its latest pivot point before reversing and closing in the upper half of its intra-day trading range. Last week, the stock jumped into new high territory with a gain on very heavy volume which offered investors another technical buy signal for this high-ranked leader. Since then, the stock has quietly pulled back on below average volume, which is considered a healthy sign. The company sports a highest-possible Earnings Per Share (EPS) rating of 99. It is also encouraging to see the company earn a healthy Relative Strength (RS) rating of 93. The company has managed to increase its earnings by well over the +25% guideline in each of the past four quarterly comparisons versus the year earlier, satisfying the C criteria. GES resides in the Retail- clothing shoe group which is currently ranked 168th of out the 197 Industry Groups covered in the paper, placing it outside the much preferred top quartile. However, the leadership from others in the group like Buckle Inc (BKE) and Lululemon Athletica (LULU) help it satisfy the L criteria. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that much from your purchase price.
Guess is one of the strong performing stocks first featured on Thursday, January 04, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) at $33.40 (split adjusted). GES has given investors several chances to accumulate shares after building out long flat bases and breaking out again. Most recently, GES appeared in the October 17, 2007 edition of the CANSLIM.net Mid Day Breakouts Report (read here) with the following note: ''Y - Traded to new all time highs then retreated a lot, yet has a solid gain with volume running at an above average pace. Strong earnings and sales history (good C and A criteria). Technically broke out with a heavy volume gain for a new high on 10/15/07.'' The report showed a pivot point of $54.20 and maximum buy price of $56.91. Remember that any stock should be sold if it falls -7-8% below the purchase price.
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Volume is a vital component of technical analysis. 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. Volume is a great proxy for institutional sponsorship. Conversely, high volume declines can be an ominous, as this usually signals distribution and further price deterioration are more likely to follow.
Guess? Inc. (GES 2.73 or 3.89% to $67.43) rallied to new high ground, rising out to a two month base. It was featured today in the CANSLIM.net Mid Day Breakouts Report (read here) with the following note, "Y - Group rank has improved. Breaking out today above the pivot point with volume on pace to trigger a technical buy signal. High ranks all around although technically some may consider this to be a late stage base and those can be more prone to failure." GES, which sports very high ranks, jumped above its $65.73 pivot point today but it failed to do so with the necessary volume to trigger a proper technical buy signal (the volume total was +45% above average). Stocks that move above their pivot point without the necessary volume have a greater chance of rolling over and negating the bullish action. The maximum buy price, also noted in the report, is $69.02. If anytime soon there are gains backed by volume above the required +50% above average level before its price rises beyond its pivot point by more than 5% (its "maximum buy" price) a proper technical buy signal may be triggered. However, if volume fails to get above that guideline, stronger performing candidates should sooner be considered.
GES has very high ranks all around. However, technically some may consider this to be a late stage base, and late stage bases can be more prone to failure. That gives investors all the more reason to wait and watch for proof of true institutional buying conviction behind subsequent gains to better satisfy the "I" criteria.
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