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An essential skill to successful investing is knowing when and how to add to a winner. The ideal time to purchase a stock is when it breaks out through its pivot point from a first stage base. Ideally, the stock spends the next few weeks rising then begins building a base-on-base pattern. A smart time to add to the position would often be when the stock breaks out of another new base. When adding to a winner, buy a smaller amount of shares at the higher levels so as to not raise your average cost too much. For example, if you initially bought 2,000 shares on the first breakout, you might buy only 1,000 shares on the add-on purchase. This pattern can be repeated after multiple breakouts, however at later stages stocks become more failure prone. When the stock tops out and sell signals start to mount, ultimately one must be ready to sell their entire position when critical support is violated.
NetScout Systems Inc. (NTCT +$0.46 or +4.32% to $10.19) triggered a technical buy signal when it vaulted above its latest $10.14 pivot point on well above the necessary +50% above average volume. NetScout Systems sports a very healthy Earnings Per Share (EPS) rating of 99. It is also encouraging to see the company earn a healthy Relative Strength (RS) rating of 84. NTCT resides in the Computer Software- enterprise group which is currently ranked 21st of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile (satisfying the L criteria). The number of top-rated funds with an ownership interest has increased from 34 funds in September ‘06 to 44 funds as of June '07, a compelling sign of increasing institutional interest (the "I" criteria). One concern is the lack of impressive sales revenue growth (circled in red in the annotated graph below).
This stock was first featured in the August 2007 CANSLIM.net News (read here) after it broke out of a steep cup-with-handle type chart pattern at the end of July. The pivot point in that report was $9.29. After making its debut in the report NTCT gave investors more than enough time to accumulate the stock within the proper parameters before its latest sprint into new high territory. The market was in a correction when this stock broke out above the high of its handle on Friday, July 27, 2007. NTCT rallied further before it was dragged lower by the negative action in the broader market. It found support near its 50-day moving average (DMA) line, which is considered a sign of healthy support from the institutional crowd.
The stock spent the past four days gaining ground on above average turnover, jumping into new high territory with today's action. When a high-ranked stock pulls back, after its initial breakout, to test support at its 50 DMA line, investors are awarded the chance to accumulate the stock up to its prior chart highs plus 5%. We have changed the color code to yellow for NTCT with a new $10.14 pivot point and $10.65 maximum buy price. Its close above its most recent pivot point is an example of how CANSLIM.net members can add to stocks as they take off!
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Netscout Systems Inc. Ticker Symbol: NTCT (NASDAQ) Industry Group: Computer-software enterprise Shares Outstanding: 32,200,000 Price: $9.71 Day's Volume: 285,800 7/31/2007 Shares in Float: 20,300,000 52 Week High: $10.04 7/30/2007 50-Day Average Volume: 196,367 Up/Down Volume Ratio: 2.3 Pivot Point: $9.29 7/16/2007 high plus .10 Pivot Point +5% = Max Buy Price: $9.75 Web Address: http://www.netscout.com
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CANSLIM.net Profile: NetScout Systems, Inc. engages in the design, development, manufacture, marketing, sale, and support of a family of integrated products that enable performance and optimization of high-speed networks. The company's nGenius Performance Management System is an integrated appliance-based software solution, which monitors, collects, and publishes information on the behavior of individual applications; information on services, such as voice over Internet protocol, supply chain management, streaming media, and customer relationship management; and the information on the performance of the underlying network, including routers, switches, and communication links, as well as on the level of activity by end-users or subscribers. The company was founded in 1984 and is headquartered in Westford, Massachusetts. Its earnings per share have jumped +50%, +100% respectively in the past two quarterly financial comparisons in March, June '07 versus the year earlier which helps the stock earn a very healthy 99 Earnings Per Share Rating (EPS). Its Relative Strength (RS) rank has jumped to an 88 rating which has positive implications. This high-ranked leader hails from the Computer-software enterprise group which is currently ranked 36th out of 197 Industry Groups tracked for relative price performance over the past 6 months, placing it in the much preferred top quartile helping to satisfy the "L" criteria. The number of top-rated funds with an ownership interest has increased from 34 funds in September ‘06 to 44 funds as of June '07, a compelling sign of increasing institutional interest (the "I" criteria).
What to Look For and What to Look Out For: Look for this issue to find support near its prior chart highs and then continue rallying. Ideally, for the bulls, market conditions would improve and boost the major averages enough to repair their recent 50 DMA line violations and this stock would continue advancing as volume expands. However, concerns could be raised if NTCT falls back under its old high close ($9.43 on March 23, 2007) and sell signals may be triggered if it rolls over and closes below its pivot point. Such a failure would completely negate the recent bullish action and technical breakout, changing its outlook for the worse. Also, it is important to avoid putting any new money to work until the major averages produce a solid follow-through day. Once that occurs, if this stock is trading within the proper parameters (between its pivot point and maximum buy price) and has not violated support, it could be considered as a proper buy candidate. Until then, the most ideal high-ranked stocks should be placed on a watch list and consistently monitored. It is very important to remain disciplined and avoid "chasing" stocks above their maximum buy point. After a stock trades above its maximum buy price, the odds of a normal pullback shaking you out increases sharply.
Technical Analysis: This stock broke out of a steep cup-with-handle type chart pattern at the end of July. It cleared the high of its handle, which marks the pivot point of $9.29, as it gapped up for considerable gains on over four times average volume on Friday, July 27, 2007, triggering a fresh technical breakout. The stock rallied further above its pivot point on Monday, but negative action in the broader market on Tuesday may have contributed to its retracement back toward support at prior resistance levels.