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Leader Retests Prior Chart Highs - Tuesday, April 29, 2008
It is not uncommon for leading stocks to pull back after breaking out. Ideally, volume is lighter when the stock retraces back toward a chart support area such as prior chart highs, an upward trend line, or a key moving average such as the 50-day moving average or 200-day moving average. Violations of those technical support levels are a concern, and they are a much greater concern when they occur on higher than average volume. It is especially worrisome when the volume on the down day exceeds the above average volume which had accompanied the prior gains.
Teledyne Tech Inc. (TDY DOWN ($0.79) or -1.39% to $57.45) pulled back and is currently retesting its prior chart highs near $57. TDY sports strong ranks; an Earnings Per Share (EPS) rating of 94, and a Relative Strength (RS) rating of 91. The number of top-rated funds owning an interest rose from 126 in Jun '07 to 160 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 chart highs near $55-57 area which would have the effect of technically negating its latest breakout.
This stock was first featured on Tuesday, June 14, 2005 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $33.60 pivot point and a $35.28 maximum buy price. Several months later, on November 15, 2005, the stock was dropped with the following note, "G - As previously mentioned - 'Further declines or a break below its 200 DMA would be a technical sell signal.' As of tonight this issue will be dropped from CANSLIM.net's Featured Stocks List." During this period featured, the stock rose over 16% but met resistance and broke several supports lines on the way down. More recently, TDY built a new base and was featured in the Thursday, April 24, 2008 CANSLIM.net MidDay Breakouts Report (read here) with a new $57.31 pivot point and a new $60.18 maximum buy price and the following note one day after it triggered a new technical buy signal: "Y - Considerable gain with heavy volume on 4/23/08 helped it blast to its prior chart highs in the $57 area after reporting its latest quarterly financials. Earnings growth in the 2 latest quarters has improved by above the +25% guideline (good C criteria) and it has a good annual earnings (A criteria). Confirming gains above its pivot point with heavy volume would be a welcome reassurance." 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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When A Trendline Is Breached - Wednesday, September 14, 2005
Included in the notes in Tuesday's CANSLIM.net After Market Update (read here) concerning Teledyne Tech Inc (TDY -$0.74, or -2.00%, to $36.35) was the observation that it, "Had nice gains intra-day yet closed with a considerable loss and near session lows. Now sitting at support of its upward trendline. As previously noted - 'a break below there would be a concern.'"
Through our ongoing analysis included in these daily reports, CANSLIM.net has been running an ongoing series on how to improve your technical analysis (group strength, importance of moving averages, trendlines, etc.). Trendlines can easily be spotted by connecting a string of prior price lows on a chart. Trend lines are most valid when at least three points are connected as you draw the line, as you can see we have done in the annotated chart from DailyGraphs® included below. This technique can help investors determine areas of support where a breach might indicate a technical failure signalling that the trend is deteriorating. Such violations can sometimes serve as an early alert for investors as to the possibility of more serious declines.
Today this stock fell below its upward trendline, one of the first signs of technical deterioration. However, the selling stopped at its 50 DMA and lacked the higher than average intensity which would be indicative of institutional selling pressure or "distribution". If this important short term average proves to be support and it manages to hold above its June-July resistance in the $35 range then higher prices may eventually follow. Should the bears overpower the bulls to send this stock below its 50 DMA, and especially if any further deterioration comes on higher than average volume, then more severe declines are much more likely to follow.
TDY has traded up as much as +17.05% after it was first marked yellow and featured in CANSLIM.net's Mid-day BreakOuts Report at $33.78 on June 14th, as it was breaking out of a three month base with above average volume (see here).
Recent Gap Open and New Highs For Featured Stock - Friday, July 29, 2005
Teledyne Technologies Inc (TDY -$0.39 or -1.02% to $37.95) gapped open on Thursday while reporting that its second quarter profit rose sharply on a 27% jump in sales, buoyed by strength at its electronics and communications business. Quarterly profit was $16.1 million, or 47 cents per share, up from $9.9 million, or 30 cents per share, last year. Sales rose to $303.3 million from $238.9 million. On Friday it had new highs intra-day with volume conviction yet reversed to end the session with a loss. This action was not particularly worrisome as the market struggled today. Solid chart support is in the $35 area where it previously faced resistance, and a break below there would be a technical failure and sell signal as the price would be falling back into the base.This Defense contractor was recently feature in a CANSLIM.net Mid-Day BreakOuts Report on June 14, 2005 (Read Here). It had a tough time making initial gains but did not drop more than 8% from the featured price of $33.78, and it found support above its 50-day moving average.
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