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One of my favorite scans involves looking for out-of-favor stocks that are under accumulation and have high relative strength. By out of favor I mean stocks that have generally seen their highs one to two years ago. These stocks have had time to form bases, and when they come out of these bases, they tend to do so in a very nice stepwise fashion. So let's look at few of these setups for some fresh ideas. Given Imaging (GIVN - commentary - Cramer's Take) is a small Israeli company that is the developer of the Given System, a proprietary wireless imaging system that allows physicians to visually examine the gastrointestinal tract of patients. The weekly price chart below has the thrust channel overlaying, which identifies significant up and down pivots. Significant pivots represent strong momentum, and they tend to act as either areas of future support or resistance. Volume bars are shown in the bottom panel. The stock peaked in October 2004 (point A) and has been in a steady down trend for almost a year. The momentum of the downtrend was thwarted by the first significant pivot up thrust (point B) in over 10 months. Prices pulled back, and on increasing volume, the down trend line was broken. This is a classic double bottom in the making. If prices can close over the resistance zone defined by the prior significant up thrust pivot (point B) and the 40 week moving average, then the pattern will have been completed. The stock should encounter resistance at $30.
AeroFlex's (ARXX - commentary - Cramer's Take) weekly chart is shown below. Last week prices, on convincing volume, definitively broke above a two-year downtrend line and above a resistance zone defined by several significant up and down pivot thrusts. This resistance level at $9.50 is now support and the stock should make its way into the next resistance zone of $12.28 to $12.85.
Applera-Celera Genomics Group (CRA - commentary - Cramer's Take) is a highly visible company in the red-hot biotechnology sector. Its weekly chart shows the stock has been in a nice consolidation period since the summer, forming a mini double bottom. Price has already broken above the shorter-term trend line (purple line), and a weekly close above the significant pivot up thrust or resistance level at $12.30 price will have broken the almost two-year downtrend line. This mini base is a great launching pad that should carry price to at least the first resistance level at $14.
Angiotech Pharmaceuticals (ANPI - commentary - Cramer's Take) is a Canadian company involved in the emerging field of drug-eluting medical devices and biomaterials. Drug-eluting refers to the science of adding drugs to medical devices and biomaterials to dramatically improve their performance. The weekly chart shows that ever since breaking the 18-month downtrend line in June 2005 (point A), ANPI has been basing. Last week it broke above two consecutive slightly down sloping pivots, and coming out of such a long base, this is bullish. The first resistance level is at $16.
Asyst Technologies (ASYT - commentary - Cramer's Take) peaked in late 2003 and spent much of 2004 coming back to earth. It has spent the last 15 months in a base pattern that I believe is a launching pad to higher prices. Notice that the first thrust down (point A) was significant, indicating strong momentum. Subsequent thrusts down (points B and C) were not significant, suggesting that downside momentum was waning. Significant up thrust (point D) means the momentum is up. Price recently broke above the down-sloping line formed by two pivots on convincing volume, and a close above the significant up thrust pivot (point D) or resistance level at $5.30 would imply that prices are headed to the next resistance level at $7.50.
All the stocks presented in this article have been out of favor for the past one to two years, but are currently under accumulation. Their price patterns are suggestive of higher prices making them good candidates for further analysis to determine if there are any company-specific drivers that would lead to sustainable price moves. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Asyst Technologies to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
Guy M. Lerner, M.D., is an anesthesiologist and a freelance writer who trades for his own account. He blends technical and fundamental analysis to determine those factors that lead to sustainable moves in the markets. Lerner's approach is research-driven and focuses on supply-demand issues, investor sentiment, intermarket relationships and monetary liquidity. He is a member of the Market Technicians Association and is the founder of TheTechnicalTake.com, a Web site that offers content, commentary and strategies for investors and traders. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send your comments by clicking here.
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