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Four Stocks for the Next Rotation

The Nasdaq-100 index has outperformed the S&P 500 and most other market indices throughout the six-month rally. Therein lies the challenge for traders and investors who are looking to get on board this fast-moving train. In other words, the index has ramped up so quickly, and without pullbacks, that it's hard to find bargains within its 100 components.

However, there are still good trades in this tech-heavy arena, thanks to the leader-laggard dynamic that's common in big liquid indices. It goes like this: As the hottest components move higher, funds take profits, and that frees up cash for purchases in lesser-performing names. This rotation raises the odds that laggards will eventually catch fire and join their better-performing cousins.

To find these potential winners, I sorted index components by their relative positions, vis-a-vis the 200-day moving average. Index leadership tends to float to the top of this performance list, while laggards drop to the bottom. Then I examined price patterns of the bottom-dwellers, looking for accumulation, growing interest and evolving uptrends.

Four stocks stood out in my chart review as prime candidates for rotational cash as market players take profits in the index leadership and go hunting for new winners. These potential beneficiaries are Hansen Natural (HANS), Gilead Sciences (GILD - Get Report), O'Reilly Automotive (ORLY - Get Report) and Apollo Group (APOL - Get Report).

Hansen Natural (HANS) -- Daily
Source: eSignal

Hansen Natural is currently the 11th-worst performer in the Nasdaq-100 index. It sold off from $68 to $20 in the 2008 crash, bottoming out in October. It mounted the 200-day moving average in December and stalled two months later at $44. The subsequent pullback has been long-lasting, with price struggling to get back above the moving average.
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APOL $8.55 0.00%
GILD $87.80 0.00%
ORLY $236.70 0.00%
AAPL $94.27 0.00%
FB $101.00 0.00%


Chart of I:DJI
DOW 15,914.74 -99.64 -0.62%
S&P 500 1,851.86 -0.35 -0.02%
NASDAQ 4,283.5920 +14.8290 0.35%

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