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.

In the past two weeks, ORB formed a downward sloping handle with losses on mostly light volume as it pulled back from its recent high, arguably forming a saucer-with-handle pattern and creating a new pivot point of $22.21.  The stock triggered a new technical buy signal today as it surged past its pivot point for considerable gains on more than three times its average trading volume. It is important to remain disciplined and not ''chase'' this stock, so disciplined investors know that it would not be within the proper guidelines to make puchases above its $23.32 "maximum buy" price set +5% above the pivot point. Also, remember that fresh earnings news can often contribute to greater than usual volume and volatility, so near-term caution is obviously called for.  And as always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.

C A N S L I M | StockTalk | News | Chart | DGO | SEC | Zacks Reports

View all notes | Alert me of new notes | CANSLIM.net Company Profile

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.

Orbital Sciences Corp. (ORB +0.23 or +1.11% to $20.48) posted a gain on below average volume as it found support at its 50 DMA line on Friday. Odds still favor this stock continuing to rally in the next few months.  On average, volume has receded in each of the past few weeks as ORB pulled back toward its 50 DMA line. Technically, it is very important to see this line defended in the days and weeks that follow. Also note the expected chart support near its prior highs. Before this stock broke out on April 30th, 2007, it ran into resistance near the $20 area.  Now, any damaging losses leading to a close under its May 17th close of $19.81 would also raise more serious concerns about its technical deterioration.

ORB was first featured in the May 2007 edition of the CANSLIM.net News (read here) with a $20.37 pivot point. The stock rallied about 10% after triggering a technical buy signal, but quickly pulled back and erased those gains and retested support near its pivot point.  Its Relative Strength (RS) rating has fallen to a mediocre 62 from the 80+ level that is an important guideline for new buy candidates under the CANSLIM(R) investment system.  If it eventually breaks out of a base-on-base pattern, its sub-par RS rank would very likely improve.

C A N S L I M | StockTalk | News | Chart | DGO | SEC | Zacks Reports

View all notes | Alert me of new notes | CANSLIM.net Company Profile

Statistically, about 40% of winning stocks will pull back after breaking out.  In other words, it is not uncommon for stocks to pullback and retest support near their pivot point after breaking out.  It is important to see the bulls show up and offer support at or above the pivot point.  This may offer investors a chance to increase their exposure before the stock continues advancing.  However, an important caveat is that volume should contract as the stock pulls back towards its pivot point. Heavy volume behind losses can be cause for concern, especially if the stock does not find support at its pivot point.  Whenever a recent breakout is completely negated by a loss that leads to a close back in the prior base, this is construed as a technical sell signal and a sign that the bears are regaining control.

Orbital Sciences Corp. (ORB -$0.38 or -1.85% to $20.17) continued pulling back to test support at its pivot point, ending lower today with a loss on below average trading volume. As long as volume continues to dry up and the stock finds support near its pivot point of $20.37 the odds of success are still in its favor. This stock was first featured in the May 2007 edition of the CANSLIM.net News (read here) as it was trading above its pivot point of $20.37 and below its maximum buy price of $21.38. Highlights included its impressive gains in each of the past four quarterly earnings comparisons versus the year earlier, satisfying the "C" criteria. The stock spent the next two days rallying on above average volume, then began pulling back to consolidate after its recent gains. ORB presently sports a healthy Earnings Per Share (EPS) rating of 88. However, its Relative Strength (RS) rating has slid in recent sessions to 74, below the 80+ guideline which is best adhered to when selecting new buy candidates. The company hails from the Aerospace/defense Equip group which is presently ranked 14th out of the 197 Industry Groups listed in the newspaper. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price. 

C A N S L I M | StockTalk | News | Chart | DGO | SEC | Zacks Reports

View all notes | Alert me of new notes | CANSLIM.net Company Profile

CANSLIM.net Profile: Orbital Sciences Corporation engages in the development and manufacture of small rockets and space systems for commercial, military, and civil government customers in the United States. It operates through three segments: Launch Vehicles, Satellites and Related Space Systems, and Transportation Management Systems. Launch Vehicles segment engages in developing and producing interceptor launch vehicles, target launch vehicles, and space launch vehicles. Satellites and Related Space Systems segment involves in developing and producing geosynchronous earth orbit satellites, low-earth orbit satellites, and planetary spacecraft for communications, remote sensing, scientific, military, and technology demonstration missions. Its Transportation Management Systems segment develops and produces fleet management systems that are used primarily by metropolitan mass transit operators in the United States. ORB has increased its earnings versus the year earlier by an impressive +27% +67%, and +36% in the three most recent comparisons for the quarters ended in September & December '06 and March '07.  The company's sales revenue growth rate in those quarters, at +24%, +8%, and +19%, respectively, is shy of the +25% guideline.  The company's management owns a 5% stake in its shares, keeping the directors focused on building shareholder value. The company hails from the Aerospace/Defense group which is presently ranked 15th on the 197 Industry Groups list, which places it firmly in the top quartile of industry groups and satisfies the "L" criteria.

What to Look For and What to Look Out For: Watch for this stock to continue rallying on above average volume in the days and weeks that follow.  Additional gains on heavy volume would provide more evidence that considerable institutional buying demand (the "I" criteria) is present. On Monday, April 30, 2007, ORB triggered a technical buy signal as it surged above its pivot point ($20.37) on nearly three times normal volume. Disciplined investors will not chase this stock above its $21.38 maximum buy price. Being sloppy and buying extended stocks increases the odds that a normal pullback might force you to sell on what otherwise would be a "normal" pullback.  Deterioration back under the $20 level, or a close under its high close of $19.90 on February 26th, would negate the recent bullish action and greatly hurt the chances for ORB to go on rallying for much greater gains. As always, it is very important for the bulls to show up and defend support at chart levels which were formerly resistance. To play good defense and to preserve your investment capital, never allow a stock to close 7-8% below your entry point or worse without taking action and selling.