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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.
Las Vegas Sands Corp. (LVS -$5.98 or -5.99% to $93.92) fell on above average volume as it sliced through its 50 DMA line today and closed near a multi-month uptrend line. This stock was first featured on Thursday, January 11, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $97.35 pivot point. After it was featured this stock rallied nearly +14% before reporting its fourth quarter results. Earlier this week, LVS said they earned $0.37 cents last quarter compared to +$0.33 in the fourth quarter of 2005, only a +12% increase. This is below the +25% guideline ("C" criteria) and a sign of deceleration in its earnings growth rate, or deteriorating fundamentals. Technically, after gapping lower with losses on heavy volume, LVS tried to find support near its pivot point, although the prior three weeks of bullish activity had been erased. Notice that volume was heavy behind the damaging losses, but its gains on Thursday lacked great volume, a sign that it was attracting only weak buying demand. And after a two day hiatus, the bears returned in full force, sending LVS slicing under its 50 DMA line for the first time since September. The bullish post-breakout (1/10/07) action been negated, and its 50 DMA line has been violated. Both significant events are considered to be technical sell signals. Only a prompt rally repairing the 50 DMA violation would improve its outlook. As always, a stock should be sold any time it falls -7-8% below its purchase price.
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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.
Las Vegas Sands Corp. (LVS +$1.52 or +1.44% to $104.33) surged to another new all-time high close with a gain on more than 4 times normal volume, a very reassuring sign of institutional buying demand (the "I" criteria). This stock was first featured today in the CANSLIM.net Mid Day Breakouts Report (read here) with a $97.35 pivot point and a $102.22 maximum buy price. Las Vegas Sands Corp. sports a very healthy Earnings Per Share (EPS) rating of 96. It is also encouraging to see the company earn a very healthy Relative Strength (RS) rating of 97. The company has managed to increase its earnings by above the +25% guideline in each of the past four quarterly comparisons versus the year earlier, satisfying the "C" criteria. LVS resides in the Leisure-gaming/equip group which is currently ranked 5th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile and satisfying the "L" criteria. On Wednesday, LVS jumped above its pivot point with gains and the necessary volume to trigger a proper technical buy signal. It was very encouraging to see LVS follow through on Thursday with another gain on higher volume. It is important to note, that this stock has quickly jumped above its maximum buy price of $102.22 and is now too extended to be considered buyable under the proper guidelines. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.
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