More Bullish Small-Cap Stocks

12/08/2014 10:15 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Small-caps being able to lead the market higher from December into January has been well established, so MoneyShow’s Tom Aspray takes a technical look at three previously recommended stocks in need of stop adjustments as well as a new pick.

It was another solid week for a majority of the major averages and sectors, though stocks did give up some of Friday’s early gains. The Dow Industrials and S&P 600 led the way up over 0.75% for the week. The Dow Transports did close the week lower in line with the negative daily signals.

Though many are looking for an imminent top of significant proportions, the majority of the daily technical studies—like the A/D lines or OBV—have not completed top formations. They could by the end of the year, but given the strong seasonal bias in December and the failure of many money managers to keep up with their benchmarks, it looks less likely this year.

In Friday’s Week Ahead column Is the Bull Market Only Half Over? I discussed how the stock market—according to the stages outlined by Sir John Templeton—may have much further to go as the investing public finally accepts a more optimistic view of the stock market and the economy.

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The ability of the small-cap stocks to lead the market higher from December into January has been well established as this chart of the S&P 600 from EquityClock.com illustrates. I have added my own annotations showing the typical breakout (line a) in late November. This confirms the strong uptrend from the October lows, line b. The small-cap iShares Russell 2000 (IWM) was recommended last week.

In early November’s 4 Small-Caps with Bullish Monthly Volume, I featured some of the stocks that appeared in my monthly scan. In running with weekly and daily scan of the S&P 600 over last weekend, several of the same names showed up but there were also a few new additions.

Three of the four stocks I recommended over a month ago hit the recommended buying zones and it is now time to adjust some of your stops. One of the small-cap stocks I liked just missed the buy level, but I still like it and I also have a new small-cap stock recommendation.

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Chart Analysis: Checkpoint Systems Inc. (CKP) closed strong last week as it was up 5.6% on quite heavy volume. It is still over 15% below its 52-week high.

  • The chart shows that the downtrend from early in the year, line a, is now being tested.
  • The quarterly projected pivot resistance is at $13.74 with the weekly starc+ band at $14.54.
  • CKP hit a high of $18.25 in 2013 and traded close to $24 in 2010.
  • The weekly RS line has just moved barely above resistance, line b, and its WMA.
  • The daily relative performance (not shown) does show a completed bottom formation.
  • At the end of October, the monthly on-balance volume (OBV) had just turned positive.
  • The weekly OBV has turned sharply higher in the past month as the downtrend, line d, has clearly been overcome.
  • The rising 20-day EMA is now at $13.02 with more important support in the $12.50 area.

Capella Education Co. (CPLA) is trying to move back to the October high at $73.04 after retesting the breakout level (line e) on the weekly chart. It is now up 8.16% YTD.

  • The quarterly projected pivot resistance is at $76.39 with the weekly starc+ band at $78.16.
  • The completion of the weekly trading range has initial targets in the $82 area.
  • The weekly relative performance is still in a clear uptrend, line f.     
  • The weekly OBV has turned up from its WMA as volume increased last week.
  • The daily OBV (not shown) just flipped back above its WMA last week.
  • The rising 20-day EMA is at $69.61 with the monthly projected pivot support at $66.21.
  • There is more important support in the $6480 area.

Next: A Previously Recommended and a New Small-Cap Stock to Watch

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Badger Meter, Inc. (BMI) was another recommendation from early November and it is up 4.02% YTD.

  • A daily close above the $58 level will be a short-term positive.
  • The upper boundary of the weekly trading range, line a, was tested last month with a high of $58.30.
  • The weekly starc+ band is at $61.03
  • A upside breakout from the trading range (lines a and b) has upside targets in the $70-$72 area.
  • The rising 20-week EMA is at $53.37 with the monthly projected pivot support at $53.21.
  • The RS line turned up from its WMA last week.
  • A move through the downtrend, line c, will confirm that BMI is a market leader.
  • The weekly OBV is still in a downtrend, line d, though it moved back above its WMA last week.

F.N.B. Corporation (FNB) was a new choice from last week’s scan. It is a $2.2 billion provider of financial services to consumers and small businesses.

  • It has a current yield of 3.71% and is up 6.34% YTD.
  • FNB dropped below the 20-week EMA last week but closed on the highs.
  • The monthly projected pivot resistance is at $13.32 with the weekly starc+ band at $13.82.
  • The weekly relative performance shows a potential bottom formation, line h, as it is barely above its WMA.
  • A move in the RS line above the resistance at line g, will confirm that it is a market leader.
  • The weekly OBV broke through its downtrend, line i, at the end of October.
  • It continues to act very positive with a strong uptrend, line j.
  • The monthly pivot and first support is at $12.70 with the monthly projected pivot support at $12.31.

What it Means: The futures are lower in early trading and I would not be surprised to see a sharp 1-2 day pullback in the next week or two. I think it will be a buying opportunity, especially in the small-cap stocks.

The previous buy recommendation in Badger Meter, Inc. (BMI) was just missed and I like it and F.N.B. Corporation (FNB) now.

How to Profit: For Badger Meter, Inc. (BMI) would go 50% long at $55.52 or better and 50% long at $54.32 with a stop at $51.88 (risk of approx. 5.5%).

For F.N.B. Corporation (FNB) would go 50% long at $12.84 and 50% long at $12.38 with a stop at $11.93 (risk of approx. 5.5%).

Portfolio Update:  Checkpoint Systems Inc. (CKP) should be 50% long at $12.74, use a stop now at $12.13.

For Capella Education Co. (CPLA) should be 50% long at $67.92, with a stop now at $64.58.

For CTS Corporation (CTS) should be 50% long at $17.62 and 50% long at $17.03 with a stop at $16.39.

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