In recent weeks we have taken the opportunity to use this section to revisit some of the previously featured stocks that were dropped some time ago based on technical weakness and fundamental concerns. Studying what happened afterwards should hopefully allow investors to get a better understanding of the importance of having a sell discipline. Limiting losses while they are small is critically important to your success, and this investment system's rule is to always sell a losing stock after it falls more than 7-8% from your buy price. These well-known, high-profile companies serve now as perfect examples that will hopefully allow investors in the future to recognize the warning signs and technical sell signals so they will know when it is time to lock in profits or minimize losses per the investment system's sell rules.
Orbital Sciences Corp (ORB $0.00 or 0.0% to $18.78) recently rallied above its 50-day moving average (DMA) line, but it now faces a tremendous amount of resistance due to overhead supply, making it unlikely to be a market leader in the near term. On June 6th, 2008 a considerable loss on above average volume pressured it under its 50 DMA line - following a breach of prior chart highs in the $26 area, noted earlier among causes for concern both technically and fundamentally. Based on weak technical action and fundamental weakness (then it latest quarter ended March 31, 2008 had shown an increase under the +25% guideline), it was noted and then dropped from the Featured Stocks list.
ORB sank under its 200 DMA line, yet it made a stand above its February lows. Then the stock rallied back up to challenge its all-time high again in mid-August, but a close look at its chart shows that it lacked the volume indicative of heavy institutional buying demand. It stalled near its prior highs, rather than breaking out impressively. The stock has traded as much as -40.62% lower since its close on the day it was dropped from the Featured Stocks list. It was first featured in the May 2007 issue of CANSLIM.net News (read here).
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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 ominous, as this usually signals distribution and further price deterioration are more likely to follow.
Orbital Sciences Corp. (ORB +$2.19 or +9.16% to $26.09) surged to a new high close while attempting to rally out of a 7-month base. Today, it posted a considerable gain on more than 2 times its average daily volume after reporting its latest quarterly results. ORB is a featured stock, so CANSLIM.net members that checked the Featured Stocks page for updated notes, and those who added it to their watchlist via the "Alert Me of New Notes" links, received the following note during today's session, "Y - Gain on heavy volume today helped it blast to a new all-time high after its latest earnings report, however there are fundamental concerns, as its +21% increase over the March 31, 2007 results is below the +25% guideline. It is trading near previously stubborn resistance in the $26 area. The Featured Stock Update section of the 3/18/08 CANSLIM.net After Market Update included analysis and an annotated graph (read here). Featured in the May 2007 edition of the CANSLIM.net News (read here) while it was trading above its pivot point of $20.37 and below its maximum buy price of $21.38."
The sequence of its past few quarterly reports shows smaller sales revenues and earnings increases, or deceleration, which gives cause for some concern. However, it sports decent ranks; an Earnings Per Share (EPS) rating of 88, and a Relative Strength (RS) rating of 80. The number of top-rated funds owning an interest rose from 106 in Jun '07 to 121 in Mar '08, which shows increasing institutional demand (the I criteria). Concerns would be raised by any weakness leading to a close under its old high closes (such as $25.46 on 2/13/08) which would have the effect of technically negating its breakout. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that from your purchase price.
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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.
Orbital Sciences Corp. (ORB +$0.94 or +4.04% to $24.20) gapped up today and closed above its 50 DMA line ($23.48 now) but volume behind the gain was below average. The market remains in a correction, which means that the overall environment (the M criteria) is not yet conducive to buying stocks, which gives ORB more time to continue working on the right side of its base. A new technical buy signal would occur if the stock trades back in the upper half of its range then eventually surges into new high territory with a breakout gain on meaningful volume.
Orbital Sciences has shown solid earnings growth and strong sales revenues growth in recent quarterly comparisons, and it also has an attractive annual earnings growth history in the past few years. That helps to satisfy the C and A criteria. ORB sports very healthy ranks, and closed -8.7% below its 52-week high, which means that this stock faces a little resistance due to overhead supply now. Its Earnings Per Share (EPS) stands at a firm 88 and its Relative Strength (RS) rating is a solid 91. The number of top-rated funds owning an interest in its shares rose from 108 in Sept '07 to 118 in Dec '07, helping to satisfy the I criteria. ORB was first featured in the May 2007 edition of the CANSLIM.net News (read here) with a $20.37 pivot point and a $21.38 maximum buy price. It spent the next couple of months pulling back, then it blasted higher in July only to soon turn lower and fall down to support at its 200 DMA line. Since then it rallied again to new highs, but it failed to make considerable headway and spent the past four and a half months basing between the $21-26 area. It is a strong company that should be included on an active watchlist until market conditions (the M criteria) are more agreeable.
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Healthy stocks that are within close striking distance of new highs are often great buy candidates for investors to keep on their watch lists, especially when the companies match favorably with all of the investment system's criteria. When a stock is more than -10% off its 52-week high, and if it has violated its 50-day moving average (DMA) line, then the outlook only gets worse and worse as it spends a greater period of time trading deeper under that important short-term average line. By the time a stock's 50 DMA line starts sloping downward it should also be acknowledged that the stock has been struggling for a long while, in which case 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 +$0.65 or +2.70% to $24.75) rallied further above its 50 DMA line on above average volume today. This high-ranked leader has shown solid earnings growth and accelerating sales revenues growth in recent quarterly comparisons. It spent the past few months consolidating, finding support above its 200 DMA line ($22.57 now). Despite the broader market's weakness, ORB still sports very healthy ranks. Its Earnings Per Share (EPS) and Relative Strength (RS) ratings are both a very healthy 90. It reached a 52-week high of $26.32 in October, shortly before the Nasdaq Composite hit its multi-year high on October 31, 2007. ORB was first featured in the May 2007 edition of the CANSLIM.net News (read here) with a $20.37 pivot point and a $21.38 maximum buy price. It spent the next couple of months pulling back, then it blasted higher in July only to soon turn lower and fall down to support at its 200 DMA line. Since then it rallied again to new highs, but it failed to make considerable headway and spent the past four and a half months basing between the $22-26 area. Orbital Sciences is currently -6.0% below its 52-week high, which means it still faces some resistance due to overhead supply up to the $26 level, yet it is within fairly close striking distance from reaching new highs. It is a strong company that should be included on an active watchlist until market conditions (the M criteria) are more agreeable.
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Once again, the "L" criteria tells investors to choose leading companies in leading industry groups, and when we have identified a high-ranked leader with the proper characteristics we should wait and watch for gains on at least +50% above average volume as a confirmation that a breakout is attracting meaningful institutional sponsorship. 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 triggers a technical buy signal and is purchased, it is always important to employ the 7-8% loss cutting rule in the event of a downturn.
Orbital Sciences Corp. (ORB +$0.39 or +1.53% to $25.91) positively reversed and closed in the upper half of its daily range. It hails from the Aerospace/Defense Equipment Group which is presntly ranked 30th of the 197 Industry Groups listed in the paper, putting it solidly in the top-quartile and thus satisfying the L criteria. This high-ranked leader is working on the right side of a new double-bottom type chart pattern. ORB was first featured in the May 2007 edition of the CANSLIM.net News (read here) with a $20.37 pivot point. The stock had rallied about 10% after triggering a technical buy signal then, but it pulled back and gradually erased those gains as it spent the next 10 weeks moving sideways, building a new base-on-base type pattern. A few weeks later the stock gapped into new high territory and triggered its latest technical buy signal - action that was discussed in the July 17, 2007 CANSLIM.net After Market Report as the major averages were also printing new highs (read here). However, those gains were short-lived. Concerns were raised when the stock gapped down on July 26, 2007, and then the market's correction began. ORB negated its recent breakout, then breached its 50 DMA line, both of which were signs that its breakout was failing to pan out.
In October the stock ralllied into new high territory but it didn't make great progress, as it ended up spending much of the fourth quarter building a new base. A double bottom pattern has formed, so the stock has been noted with a new pivot point of $25.64 and a new maximum buy price of $26.92. The stock closed today above its latest buy point, however volume, a critical component of institutional sponsorship, failed to meet the required threshold needed to trigger a proper technical buy signal. This stock is virtually clear of all resistance due to overhead supply, and disciplined investors might watch for the stock to post a solid gain and close above its latest pivot point on at least +50% above average volume before initiating a position.
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A very important technical tool that savvy investors have learned to incorporate in their technical analysis is the 200-day moving average (DMA) line. The 200 DMA line plays a pivotal role relative to a stock's price. If the price of a stock is above its 200 DMA then odds are that its 200 DMA will act as longer term support. Conversely, if the price is below its 200 DMA then the moving average acts as resistance. Obviously, if a technical breakdown or violation takes place on heavy volume it is a more serious concern. Sometimes quiet violations are repaired quickly, without a lot of additional losses. However, the key moving averages are always an important line to watch.
Orbital Sciences Corp. (ORB $1.70 or +7.23% to $21.81) positively reversed for an impressive gain after briefly dropping below its longer-term 200 DMA line on Friday. The impressive move higher is yet another example of the greater volatility in stocks that investors have seen of late. Disciplined investors would wait to see this stock form a new base pattern while also awaiting a sound market rally ("M" criteria) before thinking seriously about accumulating positions.
ORB was first featured in the May 2007 edition of the CANSLIM.net News (read here) with a $20.37 pivot point. The stock had rallied about 10% after triggering a technical buy signal then, but it pulled back and gradually erased those gains as it spent the next 10 weeks moving sideways, building a new base-on-base type pattern. A few weeks later the stock gapped into new high territory and triggered its latest technical buy signal - action that was discussed in the July 17, 2007 CANSLIM.net After Market Report as the major averages were also printing new highs (read here). However, those gains were short-lived. Concerns were raised when the stock gapped down on July 26, 2007, and then the market's correction began. ORB negated its recent breakout, then breached its 50 DMA line, both of which were signs that its latest breakout was failing to pan out. It is now -12.7% below its recent high of $24.98.
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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.
Orbital Sciences Corp. (ORB +$1.70 or +$6.93% to $22.83) gapped up for a considerable gain to a new multi-year high, rallying one day before the company's second quarter earnings news and conference call. The stock's recent action has been noteworthy.
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 then, but it pulled back and gradually erased those gains as it spent the next 10 weeks moving sideways, building a new base-on-base type pattern. This action was discussed in the June 8, 2007 CANSLIM.net After Market Report (read here) as it was finding support above its 50-day moving average (DMA) line. That report warned that, "damaging losses leading to a close under its May 17th close of $19.81 would also raise more serious concerns about its technical deterioration." The subsequent low close on June 12th indeed raised concerns, however, the stock promptly repaired the violation of its old high close and rallied back above its 50 DMA line, then it promptly repaired another 50 DMA breach 2 weeks later. Note that during the stock's pullback ORB did not trade -7% below its pivot point, however there is a fair chance that investors wo owned it felt prompted to make an exit while it struggled.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.
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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.
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.
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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.
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Orbital Sciences Corp. (ORB) |
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Ticker Symbol: ORB (NYSE) |
Industry Group: Aerospace/Defense Equip |
Shares Outstanding: 59,300,000 |
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Price: $20.87 4:04PM ET |
Day's Volume: 1,818,500 4/30/2007 4:04PM ET |
Shares in Float: 56,400,000 |
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52 Week High: $20.36 9/21/2006 |
50-Day Average Volume: 613,100 |
Up/Down Volume Ratio: 1.8 |
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Pivot Point: $20.37 2/21/2007 plus $0.10 |
Pivot Point +5% = Max Buy Price: $21.38 |
Web Address: http://www.orbital.com/ |
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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.