Littered With Overripe Shares

 | Mar 10, 2013 | 10:30 AM EDT  | Comments
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Stock quotes in this article:

abax

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drq

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amzn

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soda

The market tide continues to flow positive, which is good news for individual investors. Uptrending markets are the time to put money to work -- but not with reckless abandon.

In late February, the Nasdaq Composite pulled back 3.4% between Feb. 20 and Feb. 26 amid a larger distribution phase for all the major averages. However, last Tuesday the tech-heavy index confirmed a new uptrend when it rose 1.3% on higher volume for the day.

That said, it's always good to see an ample supply of technical breakouts when indices are hitting new highs -- and, frankly, the action has been a bit disappointing on this front. There have been few of these, but the fact is that a five-session broad pullback isn't enough for stocks to consolidate gains and form new bases. Breakouts were plentiful when the Nasdaq gapped up Jan. 2, for example, but we haven't seen many of them lately.

That's OK, though. They still could come, but it will be dependent on whether more money comes in from the sidelines in the coming days and weeks.

Recent technical breakouts have come from large-cap names such as Boeing (BA) and Starbucks (SBUX) as well as more speculative growth names like U.S. Silica (SLCA), TripAdvisor (TRIP) and Abaxis (ABAX).  

Focusing on Abaxis in particular, the stock closed just above a buying area of $55 Friday, and it was still within buying range after the close. Fundamentals are solid at this company: In the December quarter, earnings rose 69% from the prior year to $0.22 per share, while sales climbed 32% to $49.8 million. The company, with a market capitalization of $994 million, makes portable blood-analysis systems. For the full fiscal year (ending March), profit is expected to rise 38%, with another 39% rise expected in 2014.

Abaxis (ABAX) -- Weekly
Source: StockCharts.com

In addition, there are plenty of stocks finding support at their 10-week moving averages after earlier breakouts, particularly in the oil-and-gas sector.

Shares of equipment-maker Dril-Quip (DRQ), for instance, are showing good supporting action at the 10-week moving average. The stock finished with a nice accumulation week last week, rising 3.4% in higher volume. Group peer Cameron (CAM) showed similar action with a nice bounce off its 10-week line. Shares rose 4.1% for the week.

DrilQuip (DRQ) -- Weekly
Source: StockCharts.com

If you miss an initial breakout, a generally sound strategy can be picking up a stock with supporting action at the 10-week moving average. Just start with a smaller-than-normal position. A watch list should always be populated with names setting up in bases -- such as Amazon (AMZN), which is working on a bullish base-on-base pattern, setting up for a potential move higher. The stock is less than 4% from its recent high.

SodaStream (SODA), meanwhile, is working on a potential double-bottom base with current resistance at 52.67, its Feb. 14 intraday high. These shares have been consolidating gains for six weeks. The stock is on the speculative side, given market capitalization of just over $1 billion, but the company has shown a consistent track of strong earnings and sales growth in recent quarters. That said, recent gains have come on light volume, so higher-volume upside from here would strengthen its technical picture.

SodaStream (SODA) -- Daily
Source: StockCharts.com

Be careful not to chase stocks that have moved too far past proper buying areas. There's a ton of them out there, including widely-held name like Google (GOOG), Yahoo! (YHOO) and lesser-known names like Fleetcor Technologies (FLT) and Alaska Air (ALK).

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