I almost fell out of my chair this morning when I found the following article on the back page of section B in Investor's Business Daily. I'm not sure whether it is free or for subscribers only. You'll have to go to the article to see the charts. If you can't access the article, IBD is usually available at Barnes and Noble and Borders bookstores. They use pre-several splits charts to show a run up to 80 in '96. This must be when Dan Spillane took his profits and bought his Mercedes. (If any of you have been around long enough to remember Dan.) This is an excellent example of using charts to time MRVC.
Monday, April 29, 2002
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MRV Lights Up A Marvelous Gain
BY KEN HOOVER
INVESTOR'S BUSINESS DAILY
A new bull market had been under way for six months when MRV Communications broke out of a 38-week cup-with-handle base on July 28, 1995 (point 1 in the accompanying image.)
[There are three charts in the complete article]
The Chatsworth, Calif., company was a leader in concentrators and switches used in computer networks and diodes that send light waves over fiber-optic cable. Unless you're in the computer business, you might not fully understand the company and its market. But you could understand earnings and sales growth.
Earnings rose 80%, 175%, 50% and 71% the previous four quarters. Sales were up 123%, 146%, 159% and 44%. The five-year growth rate was 82%. The Earnings Per Share Rating was 98. The Relative Price Strength Rating was 73.
Investors are usually better off buying stocks with higher RS Ratings. In MRV's case it was late breaking out. A new bull market had been under way for about six months. But it made up for lost time fast. It ran from a pivot point of 15 to 24.50 in less than three weeks. Suddenly, the RS Rating was 95.
On a daily chart, the base looked a bit sloppy. The stock sold off hard June 15, but rebounded (point 2). But the weekly chart looked solid, ......
<SNIP>
That's why it's important to buy as close to the pivot as possible. An investor who did so with MRV would have never been underwater with his holdings. After the breakout from the second base, the investor had a new challenge: holding on as the stock pulled back again (point 6), slightly undercutting the pivot on the breakout from the second base.
The survivor of these shakeouts would have been rewarded. From there the stock moved up smoothly. It formed three bases as it rose, each shorter than the previous (point 7). That's common action in a winning stock, often presaging a climax run.
That's just what happened to MRV. It was a textbook run. One definition of a climax is seven of eight days are up, with one up day being the biggest of the entire advance (point 8). The weekly range of one week should be the biggest of the advance (point 9). In MRV's case, the volume was enormous. At the absolute top, the stock reversed, losing nearly all of its gain for the day.
The investor who knew how to play it could have booked a 616% gain in 43 weeks.
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