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Historic volatility in the last few weeks has made it nearly impossible to locate and trade price patterns with manageable risk/reward profiles. While enormous daily ranges translate into windfall profits when you're on the right side of the market, they yield total chaos and destruction when caught on the wrong side.
This is the reason I've spent nearly all of the last month sitting on the sidelines, with the exception of daytrades to keep my head in the game. I'm not losing money in the maelstrom and intend to take full advantage of my dry powder as the tape quiets down and we approach normalcy, whatever that means after the huge market whipsaws.
The first place I'm looking for fresh opportunity is the same place I've focused most of my attention during the liquidity crisis. That is, uncovering the handful of patterns that have avoided the shockwave of spiking volatility. Amazingly, there are still a few pockets of narrow range activity scattered around the marketplace, despite recent life-changing events.
This approach paid off last week for subscribers of
The Daily Swing Trade, my TSC newsletter, when I noticed recession stocks were rolling over, but hadn't yet broken down. Scanning through my databases, I quickly added
to my short-sale list, just before panicking hedge funds ripped their guts out.
I'll continue this filtering process today with
readers and highlight four stocks that have avoided apocalyptic selling pressure in the last two weeks. In my way of thinking, these issues are likely to recover more quickly than their peers because obliterated bagholders aren't waiting at higher prices to cut their losses.
is a drug company that focuses on diseases of the central nervous system. It rallied back to an eight-year high at 6.49 last December and dropped into a long consolidation pattern, The stock pushed above that level in late September, and got caught up in the broad market whirlwind.
However, it's held up well in the last two weeks, with a series of dips down to short-term support near 5.30. It bounced strongly at the 50-day moving average during Friday's reversal, ran to a five-day peak on Monday, and is now in a great position to test the rally high. Longer term, this strong biotech should be trading in double digits.
is a software provider of health information services. It rallied to a major high at 45.97 in 2006 and pulled back in a long correction. It returned to that level last year, but got turned away once again. The stock jumped back for the third time in September, then sold off to the 200-day moving average just one week ago.
Notice how price held that support through the index plunge, posting a second reversal during Friday's volatile session. This positive action looks like a double bottom that will yield another run at two-year resistance and possible breakout. Monday's charge above the 50-day moving average is a strong buy signal supporting that bullish turn of events.
Retail stocks have been beaten into submission in the last few weeks, as investors prepare for a deep recession in 2009. But doggie pharmacist
is a notable exception to the selling rule. The stock shows a steady uptrend that lifted price to a two-year high in September, just ahead of the recent unpleasantness.
The subsequent pullback has been orderly, with price dropping to 200-day moving average support and bouncing strongly on Friday. Although the recent decline undercut the August low by around 40 cents, the uptrend is still intact, raising the odds for a recovery that eventually tests and exceeds the most recent rally high.
Finally, let's look at a financial company that's held up exceptionally well in the last three months.
is an Ohio savings and loan that rallied to a major high at 13.20 in October 2007 and pulled back. Deep selloffs in January and July dropped price as much as 30%, but the stock recovered both times in "V"-shaped rallies.It tagged an all time high on September 19th and sold off, dropping to a six-week low just a few days later. The stock has traded in a relatively tight range since that time, holding above the low and posting a solid reversal in Friday's session. The four-week price action looks like a symmetrical triangle that eventually give way to a breakout to new highs.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Farley is also the author of
, a premium product that outlines his charts and analysis. Farley has also been featured in
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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