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.
Morningstar Inc. -$2.58 or -3.68% to $72.64) continued falling with a loss on below average volume as it sliced below its 50 DMA line on Monday. This is the first time the stock has violated its 50 DMA line since early July 2007. When the market is in a confirmed rally, unlike the present situation, any pullbacks to the 50 DMA line can offer investors another chance to accumulate shares within the proper guidelines. However, since the market is currently in a correction, and the 50 DMA line is violated, the investment system's M criteria argues that new buys are discouraged for now. This is because 3 out of 4 stocks go down during market corrections, which is not a conducive environment for investors to profit by owning stocks.
It would be encouraging for prompt institutional support to show up and repair its 50 DMA violation, however the latest weakness may be considered a technical signal prompting investors to take profits. Any additional damaging losses on heavier volume could raise more serious concerns. MORN was first featured at $64.52 in the September 2007 CANSLIM.net News with an annotated graph (read here) and has enjoyed a healthy rally since.
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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.
Morningstar Inc. (MORN +$5.01 or +7.75% to $69.68) surged to a fresh all-time high with a considerable gain backed by more than twice its average daily volume, triggering a technical buy signal. Bullish action in the early going helped it make it into today's CANSLIM.net Mid-Day Breakouts Report (read here) where it was noted, "Y - Considerable gain has it hitting a new all-time high with volume running at an above average pace. It may meet guidelines by the session's close to trigger a proper technical buy signal. As previously noted, 'Watch for a new proper technical buy signal to be triggered with convincing gains on at least +50% above average volume before initiating any new positions'.'' Shortly after the mid-day report was published MORN's volume surged above the threshold which triggered its latest technical buy signal. Recently it found support at its 50 DMA line, with volume mostly quieter than average for the past several weeks while basing. It was first featured at $64.52 in the September 2007 CANSLIM.net News with an annotated graph (read here).
Morningstar sports a very healthy Earnings Per Share (EPS) rating of 95 and an impressive Relative Strength (RS) rating of 93. MORN resides in the Commercial Services- market research group which is currently ranked 58th of out the 197 Industry Groups list. Strong leadership in the group to meet the L criteria includes several high-ranked stocks trading in close range of their 52-week highs right now including - IHS Inc. (IHS), Reuters (RTRSY), IntrDat (IDC), and ComScore (SCOR). The number of top-rated funds with an ownership interest has risen from 58 funds in September ‘06 to 63 funds as of June '07, a compelling sign of increasing institutional interest (the I criteria). The prior chart resistance in the $67 area now becomes the first area of key chart support to watch. The next important level is the stock's 50-day moving average (DMA) line (now $60.94). Disciplined investors know to avoid buying stocks above the maximum buy point, because doing so is considered "chasing" and typically hinders performance. As long as this breakout is not negated with a close back under prior high closes, odds favor even further gains.
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Morningstar Inc. |
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Ticker Symbol: MORN (NASDAQ) |
Industry Group: Commercial Services- Market Research |
Shares Outstanding: 43,200,000 |
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Price: $64.52 |
Day's Volume: 103,400 8/31/2007 |
Shares in Float: 10,800,000 |
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52 Week High: $67.16 8/31/2007 |
50-Day Average Volume: 169,400 |
Up/Down Volume Ratio: 1.3 |
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Pivot Point: $67.16 8/8/2007 high |
Pivot Point +5% = Max Buy Price: $70.52 |
Web Address: http://www.morningstar.com/ |
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CANSLIM.net Profile: Morningstar, Inc. provides independent investment research to investors worldwide. It offers Internet, software, and print-based products for individuals, financial advisors, and institutional clients, as well as asset management services for advisors, institutions, and retirement plan participants. The company operates in three segments: Individual, Advisor, and Institutional. Morningstar was founded in 1984 and is headquartered in Chicago, Illinois. The company has continually grown its sales revenues above the +25% guideline since December 2005. It also increased its earnings by +71%, +32%, +18%, and +58% in the quarterly comparisons versus the year ago periods ending Sept, Dec '06 and Mar, Jun '07, better than the +25% guideline in three of the last four reports. The company hails from the Commercial Services- Market Research group which is presently ranked 67th on the 197 Industry Groups list, which places it out of the much coveted top quartile of industry groups. I H S Inc (IHS) and Factset Research Sys Inc (FDS) are two strong stocks in the group that help satisfy concerns about the L criteria. The number of top-rated funds with an ownership interest has grown from 18 funds in September ‘06 to 63 funds as of June '07, a compelling sign of increasing institutional interest (the I criteria). Insiders still own a huge 75% slice of its outstanding shares, keeping their interest very focused on building and maintaining shareholder value.
What to Look For and What to Look Out For: Watch for a new proper technical buy signal to be triggered with convincing gains on high volume before initiating any new positions. You are wise to wait for that blast of buying as proof institutional demand is truly present and capable of leading to a sustained advance. It important to note that this could be days or even weeks away, or it might never materialize. Meanwhile, there is no way of knowing if the stock might spend a much longer time consolidating even deeper towards its 50-day moving average (DMA) line. As long as this issue continues trading above chart support at its prior highs in the $54 area the action remains healthy. However, if the bears show up and send this issue below its 50 DMA line and prior chart highs, then it would technically be falling back into its prior base which would be an ominous sign. It is important to adhere to the recommended 7%-8% guideline for cutting losses properly.
Technical Analysis: This stock is currently tracing out what may be called an advanced 3-weeks tight base pattern, from which it has yet to trigger a fresh technical buy signal. It recently appeared in the August 8, 2007 CANSLIM.net Mid-Day Breakouts report (read here) after it surged to new high territory and was too extended from a sound base to be considered buyable at the time. Since then, MORN has spent a few weeks consolidating its impressive gains in a relatively tight trading range and is currently -3.9% below its 52-week high.