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Pullback to Prior Chart Highs and 50 DMA Line Testing Support Areas - Monday, March 10, 2008
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.
WMS Industries Inc. (WMS -$1.53 or -4.29% to $37.18) continued pulling back towards its 50-day moving average (DMA) line ($36.65) and today it closed just pennies above its December 2007 high closes. WMS has shown solid earnings growth and accelerating sales revenues growth in recent quarterly comparisons, and it also has a attractive annual earnings growth history. Its Earnings Per Share (EPS) stands at a firm 93 and its Relative Strength (RS) rating is a solid 96. WMS sports very healthy ranks, and faces very little resistance due to overhead supply now.
This stock was first featured on August 26, 2007 in the CANSLIM.net Special Report (read here) with a $29.97 pivot point and a $31.47 maximum buy price. A short time thereafter, the stock triggered a technical buy signal when it traded above its pivot point on heavy volume. Since then, however it gyrated back and forth above and below its 50 DMA line while building a base-on-base type pattern. Its December breakout attempt lacked volume behind its gains to new high ground and was followed by a test of support at its longer-term 20 DMA line. The stock's rally off its January lows helped it trade +37.6% above its pivot point as it hit a fresh record high of $41.23 last month. After a healthy run, the is currently consolidating its move as it retests its prior chart highs and its 50 DMA line which are an important support level. Violations may triugger technical sell signals. Remember that 3 out of 4 growth stocks move in tandem with the major averages, which is why it is always critical to be aware of the market direction (the M criteria). Proper discipline requires investors to sell if any stock falls 7-8% from their buy price, as that is the only way to eliminate the chance of even larger losses occurring. The stock should remain on an active watchlist in the event, the market produces a follow-through day.
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High Ranked Gaming Firm Sinks Into Prior Base - Tuesday, February 05, 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.
WMS Industries Inc. (WMS-$1.50 or -4.43% to $35.35) gapped down and suffered a considerable loss on above average volume, negating its recent breakout attempt from a choppy base. This stock was first featured on August 26, 2007 in the CANSLIM.net Special Report entitled "7 Stocks That Should Be On Your Watch List" (read here) with a $29.97 pivot point and a $31.47 maximum buy point. Since then, the stock rallied about +20% before falling back under its 50 DMA line and finding support near earlier chart highs. Its most recent rallies to new all-time highs have quickly run out of steam, yet it has a high Relative Strength rank of 94, and it has been a strong leader during the market's recent correction. Earnings reported in the last 5 quarters have beaten the year-earlier period by +25% or more, satisfying the C criteria. However, the stock just violated its near term support at its prior chart highs and the next support it its 50-day moving average (DMA) line (now $33.77), where a violation would raise greater concerns.
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Consolidation Forming a Base on Base Pattern - Monday, December 17, 2007
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.
WMS Industries Inc. (WMS DOWN -$0.21 or -0.66% to $31.95) pulled back on Monday, continuing to build a long base-on-base pattern. The stock was first featured on Sunday, August 26, 2007 in the CANSLIM.net Special Report entitled "7 Stocks That Should Be on Your Watch List" (read here) with a $29.97 pivot point and a $31.47 maximum buy price. At the time, the report noted that prudent investors should wait to see a stock trigger a technical buy signal before initiating a position. A few weeks later on September 14, 2007 the stock surged above its pivot point on the necessary volume needed to trigger a technical buy signal. WMS quickly rallied +20% before pulling back to consolidate its recent move. One cause for concern is that since it sank under its 50-day moving average (DMA) line it has encountered resistance whenever trying to rally back above that important short-term average. This stock is in the process of building a new three month base-on-base pattern, and it continues to sport high ranks. As long as it stays above its prior chart highs (near $30) then its current base-on-base pattern will remain intact, but damaging losses would hurt its prospects and raise greater concerns. Remember to always sell a stock if it falls more than 7-8% below your purchase price.
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WMS - 7 Stocks That Should Now Be On Your Watch List - Sunday, August 26, 2007
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WMS Industries, Inc. |
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Ticker Symbol: WMS (NYSE) |
Industry Group: Leisure- Gaming |
Shares Outstanding: 49,000,000 |
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Price: $29.61 4:00PM ET 8/24/2007 |
Day's Volume: 546,600 8/24/2007 12:38PM ET |
Shares in Float: 35,300,000 |
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52 Week High: $31.20 6/15/2007 |
50-Day Average Volume: 618,000 |
Up/Down Volume Ratio: 0.9 |
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Pivot Point: $29.97 8/08/2007 high plus .10 |
Pivot Point +5% = Max Buy Price: $31.47 |
Web Address: http://www.wmsgaming.com/ |
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CANSLIM.net Company Profile: WMS Industries, Inc., through its subsidiaries, engages in the design, manufacture, and marketing of gaming machines and video lottery terminals (VLTs) for customers in legalized gaming jurisdictions worldwide. Its products include multi-coin, multi-line video gaming machines; mechanical reel-spinning gaming machines; poker games; and replacement parts, game theme conversions, upgrade kits, gaming stations, used gaming machines. The company's video gaming machines include engaging themes, advanced graphics, and digital sound effects and music. The company has managed to increase its earnings by above the +25% guideline in each of the past four quarterly comparisons versus the year earlier, satisfying the "C" criteria. The number of top-rated mutual funds owning this company's shares rose from 116 in Sep '06 to 143 in Jun '07, which is encouraging news concerning the "I" criteria. The stock resides in the Leisure- Gaming group which is currently ranked 86th out of the 197 groups covered in the paper, placing it just a bit outside of the much preferred top quartile. Despite this stock's high ranks and decent performance, Insiders own about 17% of its shares, which provides good motivation for them to protect and build shareholder value. Insider buying as it has continually risen to new highs is also reassuring. Its small supply of outstanding shares (the "S" criteria) could lead to dramatic price volatility, especially if the institutional crowd rushes in or out.
What to Look For and What to Look Out For: Disciplined investors wait for a stock to trade above its pivot point with gains on the necessary volume (at least +50% above average) to trigger a proper technical buy signal. Doing so is crucial to the successful investment system. Investors who try to get a head start by buying stocks "early", before a proper technical buy signal is triggered, are not following the guidelines. WMS is a strong candidate to have on your watchlist in the event it may eventually break out above its pivot point of $29.97 with enough volume conviction to trigger a compelling new technical buy signal. Then there may be a valid reason to expect it to make further progress above its prior high closes and follow through with confirming gains on heavier than average volume. Meanwhile, any close back under its 50-day moving average (DMA) line would prompt concern. Its 50 & 200 DMA lines are nearby levels of much importance chart-wise, and violations could trigger technical sell signals. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that much from your purchase price. Also, keep in mind that satisfying the "M" criteria calls for being sure the major averages first produce a proper follow-through day before initiating any new positions. Market conditions need to show technical improvement and leadership (new highs) must expand, otherwise odds are stacked against investors for now.
Technical Analysis: The stock has very little resistance remaining due to overhead supply, with it now hovering near all-time highs. During the market's recent correction it briefly violated its 50 & 200 DMA lines, but it found prompt support and quickly repaired the breach with gains backed by very heavy volume. That offered a reassuring sign of institution support.