Four Stocks That Can Lead a New Bull Market
08/10/2010 12:01 am EST
As I was running through charts this evening, I noticed that McDonald's Corporation (MCD) was trading very close to all-time highs, which was impressive considering how weak the markets have been over the past few months. There is no sign of strength more certain than a stock trading at its highest point. Stocks trading at all-time highs have no clear resistance overhead, as any traders who are long are sitting on profits. In fact, the only traders in pain are shorts, or possibly traders who may have missed the opportunity to get long. One of the simplest ways to find the strongest stocks is simply to look for those trading near all-time highs.
Typically, stocks trading at all-time highs dwindle during bear markets, lending even more credence to the few stocks that maintain their strength through extended market weakness. If a stock can find enough institutional support through a bear market to remain near all-time highs, it may very well lead the way in a bull market.
Mead Johnson Nutrition Co (MJN) is a stock that has held up very well through the correction that began in April and has actually started to outperform the markets on a relative basis over the past few weeks. While the markets have been attempting to bottom, MJN has started to set higher lows as it trades up to the top of its base near $55. While this base is nice on its own, the fact that the top of this base also coincides with MJN's all-time highs makes it more attractive. A breakout from here would push MJN to fresh highs and possibly squeeze some shorts.
Another stock trading near all-time highs is Cracker Barrel Old Country Store, Inc. (CBRL). In fact, the top of the current base marks its all-time high, much like MJN. The key difference here is that CBRL is still in the middle of its base and has a level of resistance near to clear before making a run at its all-time high. However, the recent action is promising and a move above $50 would likely lead to a test of that high.
Tractor Supply Company (TSCO) is another stock pushing up to the top of its base, which also coincides with its all-time high. TSCO has shown clear support on each pullback to the bottom of its base near $60 and buyers may be close to overwhelming sellers. If the markets can continue gaining some traction, then TSCO will likely break out of its base.
Many trend-following strategies are centered upon stocks breaking to new highs, and with good reason. Strength often begets strength, and the popular catch phrase for trend followers is “The trend is your friend until the end.” These stocks are pretty close to testing their all-time highs and could easily break out if the markets continue higher.By Joey Fundora, trader and blogger, Downtowntrader.blogspot.com