Two Stocks I’m Stalking Now

07/19/2010 10:27 am EST

Focus: STOCKS

I've been patiently waiting for the general markets to stabilize and have been very carefully picking my spots over the past several weeks. Despite the fact that I have been trading less frequently, I do continue to add potential longs to my watch list. The general indexes are at an interesting spot here as the S&P 500 pauses near its declining 50-day moving average. I can see multiple scenarios happening from here and remain open minded to all of them.

As many of my regular readers know, I prefer to look for stocks that are showing relative strength, and the following two stocks have held up very well through the recent correction. While I think the markets could use a little rest here, these stocks are far enough along in their bases that they could be ready to break out soon.

Dr. Reddy's Laboratories Limited (RDY) is one stock that I have been stalking since June. I have been waiting for it to base a little, and the recent price action near the 20-day moving average looks positive to me. It is trading in a triangle and is close to testing the upper trend line. RDY is a little thin, so traders should be careful with it.


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Finisar Corporation (FNSR) is another stock I've been stalking for weeks. FNSR had a fantastic rally earlier this year as the network group caught fire. It has been consolidating since April and could be ready to emerge from its base. It looks like $16.50 would be the first level to watch just above, and a strong move above this price should help propel it to new highs.


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I'm still leaning towards the general markets heading lower before a meaningful rally can emerge, but I am also seeing a lot of traders sharing those negative thoughts. This could set the stage for continued strength when no one is expecting it, which is why I continue to prepare for both long and short plays. If the market rallies further, then these two should break out.

By Joey Fundora, trader and blogger at Downtowntrader.blogspot.com