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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (27373)	7/9/1999 11:04:00 AM
From: IQBAL LATIF	Respond to of 50167

What is a a "break-a-way gap move." Is Comp or SPU going through one right now, with example of IBM last year in mind one can make comaprisons that if market comes on or above expectations this "break-a-way gap move" is very possible.. A Power Lesson For Aggressive Investors By Leo Fasciocco, Syndicated Investment Columnist There comes a time when an investor should throw caution to the wind and go for it! One of those times is when a stock does what a market technician describes as a "break-a-way gap move." That's when the price of a stock breaks out of a consolidation pattern of several weeks. The gap refers to a gap in the price of the stock when seen on a chart. The pattern is very bullish and often times very profitable to the investor who spots it and acts. International Business Machines Corp. (IBM) did just that this year. IBM gapped higher on April 22 from 171 7/8 to 192 3/4 - a 20 7/8 point move. The advance cleared the top of about a four month base that had upside resistance at 192. The catalyst was IBM's report of a 46% increase in net for the first quarter. The normal reaction for some investors might be not to buy feeling the good news was discounted into the stock after IBM gapped ahead sharply. However, the technical pattern, a closer look at the earnings and the fact IBM would split were the keys to give an aggressive investor the "green light." It is also a lesson that Signal subscribers can remember when a similar situation pops up again - and it will. First, any stock that "gaps out of base" deserves special consideration as a potential buy. That's because the tape is telling you that the stock is exceptionally strong. A way to handle it would be to scale in on the day's first move and then average up if the stock can surmount its high for the session on the next day. That's what IBM did. It's high on the gap day was 198 3/4. The next session it pushed higher reaching 206 5/8. The tape action for the day was very good. IBM showed up tick volume of 2 million shares. That indicated continued strong demand, especially from institutions. IBM's earnings gave two tipoffs that they could propel the stock. First, IBM reported first quarter net rose 46% to $1.55 a share. The $1.55 beat the highest estimate on the Street of $1.45 a share that came from a survey of 21 analysts done by Zacks Investment Research. Many commentators focus on earnings beating the consensus. However, what really can drive a stock is if earnings beat all estimates. That's what IBM did. The reason it is so bullish is that almost every analyst must adjust their estimates for the year higher and their valuation models. So, Signal users should always be alert when a company "stumps the entire Street." Often times, a stock will continue higher on that earnings momentum alone. Secondly, IBM's earnings gain of 46% represented an acceleration in earnings growth. Earnings gains for the prior quarters were 5%, 16% and 17%. Quarterly acceleration of earnings growth is a powerful driver for a stock. It says a company's business is getting better. Another plus for IBM was its declaration of a 2 for 1 stock split effective May 27. Stocks with strong upside momentum and outstanding earnings will tend to "run up" into the date of a stock split. Why? No one knows for sure, but it happens enough to be a good omen. So IBM had everything going for it: Technicals, earnings and a split. The only concern would be that the stock appeared extended on the gap move. However, investors could find encouragement from Jesse Livermore's classic "Reminiscences of A Stock Operator." He says when a stock appears hard to buy and you have to pay up, it is often a good one. IBM was a good one indeed.The stock pushed on to 212 in just a few days. It then consolidated its gain for about a week and then ran to 246 by mid-May. The stock's advance fit the "pattern of measurement" used by many tech analysts. The stock's technical pattern was a "flag." The run up from the low of 165 just prior to the big earnings news to 215 in a week is what is called the "flag pole." The subsequent two week "box-like" base was the flag. IBM broke out of the flag - sometimes called a continuation pattern - on May 7. Generally, the point gain of the prior run up of the flag pattern generally repeats itself. The prior advance totaled 50 points - 165 to 215. IBM then would be expected to climb from 203, the low in the base portion of the flag, to 253. It got to 246 quickly as of this writing. Not bad! The pattern of a gap break out move on better-than expected earnings is a good one for Signal subscribers to be alert for. They often come around earnings time and can be quite profitable.