IBD: "Prior Uptrend Splits Leaders From Laggards"...
investors.com
>>>Monday, August 14, 2000
Prior Uptrend Splits Leaders From Laggards
By Christina Wise
Investor's Business Daily
The Olympics draw the best athletes the world has to offer. In order to compete, contestants must prove they can outperform most of their peers.
You should hold your investments to the same standard. Stick to stocks that have shown they have the ability to beat the competition.
A stock that forms a base after fighting its way to higher ground has demonstrated it's capable of a significant move.
In general, look for an uptrend of at least 30% in the weeks and months BEFORE a base forms. The time to buy is when a stock with strong earnings, sales and institutional sponsorship bolts out of a well-formed base in HEAVY VOLUME.
The prior uptrend will help boost a stock's Relative Price Strength Rating. Winning stocks show greater strength compared with the rest of the market before they begin their major price advances.
A laggard stock that has muddled along for months or years without making a major upward move probably won't do much even if it does manage to shake free of its base.
When you buy stocks that have formed bases after prior uptrends, you also DON'T have overhead resistance to contend with.
But a weak stock that tries to reverse a prior downtrend must fight past disgruntled investors who bought at higher prices. Every time the stock rises, they're waiting for a chance to unload their shares and break even.
You're better off putting your money on a proven winner than bottom fishing and hoping to hit the jackpot by finding a diamond in the rough.
Don't underestimate the intelligence of the market. Because it encompasses thousands of eyes looking at the same stocks you are, your chances of outsmarting it and seeing something it does not are slim.
Usually, it has already spotted a company with potential and sent its stock north for at least a brief period.
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Image: Proven Track Record
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Consider Alliance Semiconductor. After coming public near the end of 1993 at $8 a share, the chipmaker more than doubled in price by March 1994, then slipped into a 26-week base.
It broke out in September and went on to gain 494% over the next 10 months. Despite its newness and relatively low price, the large, sustained run-up after its market debut was a sign it had the strength to move higher.
Lucent Technologies gained 132% between October 1996 and July of the following year. The No. 1 telecom equipment maker then took a break, lapsing into a 28-week base.
It broke out on Jan. 29, 1998, and by early April had gained 76% before taking another break in its northward journey.<<< |
