This column was originally published on RealMoney on July 29 at 3:00 p.m. EDT.
I'm taking a vacation next week for the first time in more than five years. Unlike my previous forays away from the trading turret, I will not take a laptop with me to track my positions while I pretend to relax. Instead, I'll be working hard at not working.
I am so committed to unplugging that I've closed out all my positions. I'm flat. I could have just opted for protecting existing positions with stops -- play the upside while limiting the downside.
But that wouldn't work because I would still be preoccupied with my portfolio: Did I get stopped out? Should I raise my stop to protect profits? These are the questions that would serve only to increase stress, not relieve it. I plan to return with more energy and a fresh perspective.
Is this the right time to back away? Yale and Jeff Hirsch's
Stock Trader's Almanac
provides a bit of comfort. Today is the last trading day of July -- the first month of the third quarter. The
notes that first months of quarters are the most bullish -- January, April, and July (the fourth quarter is a bit different because of the influence of national elections and year-end portfolio positioning).
Using the data from 1950 through June 2004, here's how the
breaks down. The average gain for the first months of the first three quarters is 1.23%; the second months averaged a gain of 0.07%; and the third months averaged a gain of 0.17%.
Assuming that history repeats itself -- and it always does until everybody catches on -- then the history book gets burned. I'm leaving at a good time.
With average August gains of just 0.07%, my solace lies in the fact that August has averaged close to flat over the past half-century.
For today, though, let's say that I was going to carry positions while I was away. Here are five charts that I'd consider holding over the next week -- with stops as protection, of course. These stocks are likely to outperform the market handily.
has been consolidating very impressive gains for the past month. Thursday the bulls blew the stock right through resistance on heavier-than-average volume. This is a textbook breakout within an uptrend. It is a signal that the uptrend remains intact. RSI (relative strength) is very overbought -- strong stocks always produce this type of reading. Assuming I was holding this stock while lazing on the beach next week, I'd put a stop right around $77.
looks very similar to SpectraSite. In fact, the charts are almost identical, so the analysis is the same. High-volume breakout from consolidation within an uptrend. The trend is intact, and I'd put a stop right around $21.75.
( CEG) has been trading within a tight range for a month. RSI had been on the decline during the past month, but Thursday's breakout broke that downtrend. Volume has been heavy these past two days, which is further evidence of the viability of the breakout. I'd put a stop right around $58. If the demand is not strong enough to keep Constellation Energy above support, then I wouldn't want to own it.
Let's look at a couple of reversal candidates.
Willis Group Holdings
The downtrend in
appears to have ended in mid-June. On Wednesday, the bulls established a higher low than the June lows. But the tight volatility still left you wondering whether the last four weeks of advances were just the latest oscillations within a downtrending trading channel. Thursday's high-volume breakout, though, showed that Willis Group has some legs. I think Willis could very easily test the breakout, so I'd place a stop at around $32 -- right beneath the prior support line.
shows a similar pattern. After trending sideways for the past few weeks, the stock broke out of consolidation on heavy volume, effectively ending the downtrend. RSI also broke above the prior high, confirming the move. So this looks like a high-probability long to me. But I'd keep a stop around $44 to limit my losses.
So we've seen five stocks that I'd probably be buying if I wasn't taking a break. When I'm back from vacation, we'll take a look at these stocks again and see whether I should have held these stocks instead of holding cash.
Be careful out there.
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Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick is a member of the Market Technicians Association and manages The Stock Market Mentor, a Web site focusing on the proper use of technical analysis for trading and investing. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback;
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