| Chart Patterns Sector Rotation CEPH GPRO PFE BMET |
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| Thursday, January 26, 2006 |
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Pre- Market Update - CEPH, GPRO, BMET, & PFE
As far as futures go, they are flying, NQ futures are up 15, ES is up 4 , Dow futures are up 34. In the world markets, the NIKK is up 600 points and the DAX and CAC are breaking out to new multi year highs. We have recently bought about 15 new stocks. I prefer to pick days we have consolidation or pull backs to buy. There is always a theme that runs in the portfolio. Our new portfolio theme is Bio and pharma stocks. The reason why is because the following charts that I am going to bring up today are looking bullish on all time frames. Any time we make a shift into new stocks there is always added volatility. Volatility in a stocks appears in two-forms. Volatility appears right before an acceleration or a reversal.
Cephalon, Inc. (CEPH)- Monthly Chart
CEPH is in a monthly slim jim pattern. It has been in a rectangle for 6 years! I believe it is going to break out of this rectangle. The bottom is in the $35.00 area and the top is at $80.00, if you subtract both you get $50.00, you then add $50.00 to $80.00 and you get a price target of $130.00. This chart look bullish you can see expanding volume along with price and the indicators and oscillators are bullish.
Gen-Probe Inc. (GPRO)- Monthly Chart
On the monthly chart, GPRO is in a long rectangle / slim jim. In addition, it held the uptrend line on the weekly. GPRO is bullish on all time frames. It is one of my favorite stocks. Again, indicators and oscillators are bullish. My target is in the $70.00 -- $80.00 range once it breaks out above $53.00. There is also huge short interest in this stock which should propel it higher. GPRO will not get momentum until all the biotech's start to make 52 week highs together.
Biomet, Inc. (BMET)- Monthly Chart
The monthly chart of Biomet shows that, it too, is in a possible ascending triangle. As you can see BMET has held it's 12 year uptrend line and there has been 4 months of up trending prices. In addition, stochastics and the PPO seem to have bottomed and are starting to reverse upwards. This is a low risk entry point and it is a low risk stock. It may not move fast but that is OK. If it goes up to test resistance around 49.00 that is a good $12.00 gain from entry at $36.00. Furthermore, momentum will pick up the closer we to the $49.00 area. Longer term price target is $70.00, stop is at $32.50.
Pfizer, Inc. (PFE) Monthly Chart
The monthly chart of PFE illustrates that it is currently in a wave 3 to 4 correction. Once it breaks the down trend line above it will be on it's way to put in wave 5. It seems that PFE is close to a bottom. The stochastics are turning up and the PPO is also starting to move up. PFE is up 7% this month at $25.05.
Upside Breakout Classic Pattern
Implication
An Upside Breakout is considered a bullish signal, marking a breakout from a trading range to start a new uptrend.
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Description
An Upside Breakout occurs when the price of a financial instrument breaks out through the top of a trading range. This technical event indicates that prices will rise explosively over a period of days or weeks as an almost vertical uptrend appears.
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Trading Considerations
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least two times the duration of the pattern.
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Criteria that Supports
Duration of Trading Range
The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The longer the duration of the trading range the more significant the breakout.
Narrowness of Trading Range
The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a small difference between the upper and lower boundary (making it narrow) then the breakout is considered stronger and more reliable.
Support or Resistance
Look for a region of support or resistance around the target price. A region of price consolidation or a strong Support and Resistance Line at or around the target price is a strong indicator that the price will move to that point.
Moving Average
Prices which quickly move 50% above the 200-day Moving Average strongly support this pattern.
Moving Average Trend
Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. The Moving Average should change direction within the duration of the pattern and should now be heading in the direction indicated by the pattern.
Volume
A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.
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Criteria that Refutes
Duration of the Trading Range
The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The shorter the duration of the trading range the less significant the breakout.
Narrowness of the Trading Range
The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a large difference between the upper and lower boundary (making it wide) then the breakout is considered weaker and less reliable.
No Volume Spike on Confirmation
The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable.
Moving Average Trend
Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. A Moving Average that is trending in the opposite direction to that indicated by the pattern is an indication that this pattern is less reliable.
Short Inbound Trend
An inbound trend that is significantly shorter than the pattern duration is an indication that this pattern should be considered less reliable.
CEPH
GPRO
BMET
PFE
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