An important point for prudent investors to remain cognizant of is that a strong stock normally builds several bases before it eventually tops out.  Needless to say, earlier stage bases are less risky than their later stage counterparts.  A general rule that is derived from studying leading stocks over the course of the past several decades is that if volume swells as the stock advances then odds favor that further price appreciation is likely. However, the converse is also true, and a lack of volume behind gains gives investors another reason to question a stock's ability to make a sustained advance in price.

Graham Corp (GHM -$3.25 or -3.10% to $101.60) gapped down today for a small loss on lighter than average volume.  It has traded up as much as +70.87% since the stock was first featured on Tuesday, May 13, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here).  It is now extended from an ideal base, yet it has been stubbornly holding its recent gains while hovering in a relatively tight trading range for a couple of weeks. It may build another sound base in the near term and it could eventually produce new technical buy signals again,  However, it is also important to keep in mind that the stock is up 10-fold from its January 2007 lows and, therefore, it would be considered a late-stage breakout in that eventuality.  While it may sprint higher for a "climax run", the current market environment (the M criteria) makes that scenario seem rather unlikely.  Meanwhile, investors who are now holding profitable positions may want to start watching for the stock to show signs of distributional pressure, and they should be standing ready to take necessary action to protect their hard-earned profits.

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Another important factor is the relationship between an uptrend and a stock's pivot point.  Typically, stocks begin forming an uptrend after rising above their pivot point.  In the event the upward trend is violated, the stock will generally be expected to continue falling until it can retest support.  Initial support is often the 50-day moving average (DMA) line, or its pivot point, whichever is higher.

Graham Corp. (GHM +$5.34 or +8.46% to $68.44) posted a solid gain with nearly triple its average volume, rallying back above its pivot point with greater conviction. This high-ranked stock recently pulled back and raised concerns as losses on above average volume pressured in under prior chart highs near $60.  However, it was encouraging to see it promptly recover back above its prior chart highs and find support well above its 50 DMA line which likely means that these areas will act as support if the stock continues consolidating. GHM sports very strong ranks; its Earnings Per Share (EPS) and Relative Strength (RS) rating are both 99, the highest possible reading. This stock was first featured on Tuesday, May 13, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $64.99 pivot point and a $68.24 maximum buy price and the following note: "Gain today has it challenging its pivot point, and a considerable gain with at least +50% above average volume may trigger a technical buy signal. Strong quarterly sales revenues and earnings (good C criteria) increases. Small supply of shares outstanding (the S criteria) may contribute to greater volatility, especially if institutional investors rush in or out. Disciplined investors would watch for a confirmed technical buy signal, and as always, limit losses if any stock falls more more than 7-8% from the purchase price." GHM is a candidate that should remain on an active watch list until the market produces a new follow-through day.  Then it may be considered buyable as long as the stock has triggered a fresh technical buy signal but not risen beyond its max buy level. Remember to always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that from your purchase price.

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