Leader Sets Up, But No Buy Signal Triggered - Wednesday, February 07, 2007

Leader Sets Up, But No Buy Signal Triggered - Wednesday, February 07, 2007

Often, when a leading stock is setting up to breakout of a solid base it is highlighted in CANSLIM.net's Mid-Day Breakouts Report.  The most relevant factors are noted in the report which allows prudent CANSLIM oriented investors to place the issue in their watch list.  After doing any necessary backup research, the investor is prepared to act if and when the stock triggers a technical buy signal (breaks above its pivot point on more than +50% average turnover). In the event the stock fails to trigger a technical buy signal and its price declines then it will simply be removed from the watch list.

Liquidity Services Inc. (LQDT +1.02 or 4.71% to $20.62) rallied for a considerable gain on over two times its average daily trading volume. This stock was first featured today in the CANSLIM.net Mid Day Breakouts Report (read here) with a $21.60 pivot point. This company sports a very healthy Earnings Per Share (EPS) rating of 92 and a very healthy Relative Strength (RS) rating of 96.  LQDT resides in the Internet-e Commerce group which is currently ranked 69th out of the 197 Industry Groups covered in the paper, placing it a bit outside of the much preferred top quartile. However, leadership in the group other internet related companies helps somewhat reassure investors in regard to it meeting the "L" criteria. This stock is currently setting up, very near a challenge of its prior chart highs.  Proper discipline mandates that a technical buy signal be triggered before initiating a position. For those that do not know, a technical buy signal is triggered when a stock trades, and preferably closes, above its pivot point with meaningful gains occurring while volume spikes up at least a minimum of +50% above its average trading volume. At that point it has cleared all overhead supply and the path of least resistance will normally lead a stock to even higher highs. 

It is important to be disciplined and not act until a proper technical buy signal is triggered, because the odds are stacked against you until price and volume confirm your thesis (that the stock is in great demand and being accumulated by mutual funds and other large investment account managers). In this case, after the closing bell the company released its fourth quarter financial results and failed to impress the Street. As of this writing, the stock was down nearly -5% in the after-hours trading. This reiterates the importance of remaining disciplined and not buying a stock "early", before the proper buy guidelines are met.  Assuming the stock was really a great winner that was headed for a double or triple in its share price, it would first need to clear $21, $22, and $23. It also is another example of how volume and price volatility commonly get more extreme near earnings news releases.

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