3 Bottoming Stocks in a Strong Market
06/23/2014 10:35 am EST
Even though last week saw a significant, albeit expected rally, MoneyShow’s Tom Aspray uses technical analysis to uncover three stocks that are just bottoming out and still well below their 52-week highs.
Last week’s stock market rally was impressive—but not really surprising—as the correction from the June 9 highs was a classic pullback within an uptrend. The Spyder Trust (SPY) is up almost 2% from the correction lows and, as I mentioned a week ago, “The Spyder Trust (SPY) completed its 10-week trading range on May 27 with measured upside targets in the $198 area.”
The Dow Jones Utilities had the strongest week, up over 4%, followed by the Russell 2000 and the Dow Jones Transportations. Surprisingly, the individual investor has turned less bullish as last Thursday’s report revealed that 35.2% are bullish now compared to 44.7% the previous week.
The market’s strength has not brought out many raging bulls in the financial media as more are making the case—via the VIX, etc.—for why the market should not continue to move higher. The five-day MA of the % of S&P 500 stocks above their 50-day MAs has risen to 80.48% and is still in a strong uptrend.
I would not be surprised to see portfolio managers scrambling to buy stocks in the last two weeks of the month as most hedge funds are underperforming the market, which is one of the reasons “you shouldn't invest in a hedge fund or like a hedge fund.”
Despite the market’s impressive gains, there are still a number of stocks that are just bottoming out and are still well below their 52-week highs. Let’s first take a broad look at the market after last week’s rally as well as three new picks.
Chart Analysis: The weekly chart of the NYSE Composite shows the very strong close last week as the monthly projected pivot resistance at 10,920 was overcome.
- The quarterly projected pivot resistance stands at 11,087, which could easily be reached this week.
- The weekly starc+ band is at 11,185 with the upper trend line resistance, line a, at 11,250.
- The weekly NYSE Advance/Decline made another new high last week as it shows a pattern of higher highs since early in 2014, which is quite bullish.
- The A/D line is well above the uptrend, line b, and its solidly rising WMA.
- The weekly on-balance volume (OBV) made new highs three weeks ago and another new high last week.
- The daily OBV (not shown) is rising even more sharply.
- The recent pullback held well above the 20-day EMA which is now at 10,842.
- The NYSE composite has held well above the weekly pivot (blue line) at 10,678 all month.
Gold prices had a dramatic move last week and it looks like the seasonal bottom for gold prices came a bit early. There are still some gold miners, like Newmont Mining Corp. (NEM), which yields 2.51% that appears to have just bottomed.
- NEM is 27.4% below its 52-week high and appears to be completing its weekly bottom, line f.
- A strong close above the resistance at $26.47 (line e) will complete the bottom.
- The 38.2% Fibonacci retracement resistance (from the 2013 high at $54.97) is at $33.74.
- The volume was strong last week and the OBV has moved above its WMA.
- The longer-term downtrend, line g, has also been broken.
- The daily OBV (not shown) moved above its WMA early in the month and, therefore, the OBV multiple time frame analysis is positive.
- There is minor support now at $24.30 with stronger at 23.90.
- The rising 20-day EMA is now at $23.54 with the quarterly pivot at $23.46.
NEXT PAGE: 2 More Attractive Stock Picks|pagebreak|
Dun & Bradstreet Corp. (DNB) is a $4 billion provider of business information that has a current yield of 1.56%. It is currently 13.6% below its 52-week high.
- The chart shows a gradual uptrend, line a, as it closed last week on the highs.
- The next resistance is at the early May high of $110.42 with the monthly projected pivot resistance at $113.69.
- The quarterly pivot resistance is at $117.13 with the January high at $123.49.
- The relative performance shows a potential bottom formation, line b, as it closed the week above its WMA.
- The weekly OBV has been above its WMA since early MA and turned up from support (line c) and its WMA last week.
- The daily OBV (not shown) looks very strong as Friday’s volume was double the average.
- There is initial support now at $106.90 to $106.40.
- There is stronger support at $105.40 with the rising 20-day EMA and the monthly pivot at $104.96.
Paychex, Inc. (PAYX) is a $15.1 billion payroll and human resource company. It has a yield of 3.36% and is 9.38% below its 52-week high as it is down 7% YTD.
- The daily chart shows that the support in the $39.79 to $40.21 (line d) has been tested several times since April.
- The monthly projected pivot resistance is at $41.87 with the daily starc+ band at $42.32.
- The early 2014 high is at $45.17 while the quarterly resistance is at $47.96.
- The daily relative performance has just moved slightly above its WMA and the downtrend, line e.
- It needs to move above the mid-May highs to complete the bottom formation, line f.
- The daily OBV has broken its downtrend, line g, and moved above its WMA on Friday.
- The weekly OBV (not shown) has turned up but is still slightly below its WMA.
- There is initial support now in the $41.25 area with the 20-day EMA at $40.11.
What it Means: At the end of May, there were signs that after several choppy months the market was starting to trend higher. The daily ADX line on the Spyder Trust (SPY) is still rising, strongly consistent with a trending market.
The longer-term charts often give one a better perspective on the markets, even the yearly charts. The weekly scans often provide some of my best investing opportunities and these three stocks look attractive.
How to Profit: For Newmont Mining Corp. (NEM), go 50% long at $24.31and 50% long at $23.74 with a stop at $22.73 (risk of approx. 5.4%).
For Dun & Bradstreet Corp. (DNB), go 50% long at $107.17 and 50% long at $105.77with a stop at $101.48 (risk of approx. 4.7%).
For Paychex, Inc. (PAYX), go 50% long at $41.39 and 50% long at $40.87 with a stop at $39.66 (risk of approx. 3.6%).