Watch the Overachievers

 | May 16, 2012 | 7:00 AM EDT  | Comments
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Stock quotes in this article:

ulti

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arba

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lpsn

Though any buy is fraught with risk in the current market downturn, there are stocks whose price action is outperforming the wider market. These are names worth tracking, because they can become early gainers when a new uptrend emerges.

Ultimate Software (ULTI) bolted 3.5% Monday, to an all-time high, in more than double normal turnover after Goldman Sachs upgraded the stock to Buy from Sell. Goldman cited improving spending trends in the company's category, software-as-a-service human-resources products. The analyst raised its price target to $100 from $65.

The stock was pulling back Tuesday, but I was not considering it an immediate buy candidate, in any case, given market conditions. In its Tuesday pullback, Ultimate got support just above its 10-day moving average, and volume was lower than what it was in Monday's gap higher.

This is an outstanding watch-list name. It has a two-year track record of solid earnings growth spurred by revenue increases, as well as analyst estimates for strong double-digit income increases this year and next. The short-term moving average support makes the technical case for the stock as a watch-list name.

Fellow business software maker Ariba (ARBA) is trading just below a multiyear high of $40.45, reached on April 27. The stock has been trending gradually lower since then, consolidating in an orderly fashion. The company makes software to help companies managing purchasing of goods and services.

The chart has some bullish attributes. Its base in the second half of 2011 undercut the previous consolidation, action that indicates traders lacking in conviction have exited the stock. It notched a strong rally in February, March and April of this year, but has pulled back with the market this month.

As you've noticed, I'm not particularly excited about making buys at this juncture. In fact, I stay away from new longs in any market downturn.

I like the chart action on Ariba as it pulls back gradually above key moving averages. Analysts see earnings increases of 22% and 16% in the next two years, a good sign of current institutional confidence in the company's ability to grow.

A small-cap business software maker that's also consolidating well is LivePerson (LPSN). The company provides online marketing and customer service assistance for businesses. The stock is consolidating from an all-time high of $17.57, reached March 27.

The stock is potentially forming a double-bottom pattern. It fell to a low of $15.38 on April 10, then attempted a rally. It only ran as high as $17.25 on April 20, then began reversing lower again. It fell to $14.57 on May 8, undercutting the trough of the earlier pullback.

Such movements frequently precede a fresh rally in the stock as value-oriented investors jump in to buy shares on the dip.

LivePerson advanced 6.2% last week and, as of Tuesday's close, shares were up 1.7% for the week. In a bull market, a buy point could materialize on the stock clearing the intermediate high of $17.25. However, poor market conditions at the moment would keep me away, as it would be too easy for a new market downdraft to obliterate a nascent rally in a stock.

As with the other stocks named here, I consider LivePerson a name you should continue tracking.

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