My trading background is primarily as a technician. In the growth methodology that I was taught, technical strength (as in rallying to new highs) was the primary consideration when making a stock purchase. Over the past couple of years, as I've begun employing other fundamental and technical analysis tools, I've changed my view of where the most appropriate buy points occur.
For example, I now scan for 200-day support as a possible entry-point signal, something I never did when I was primarily focused on small- and mid-cap growth trading. For large-caps with a longer potential holding period, it often makes sense to enter when the stock sees support at that longer-term moving average.
Erstwhile large-cap growth leader Priceline (PCLN) closed Monday at $625.50, 2.8% below its 200-day line. The stock has been struggling technically since April, but after big rallies in 2009, 2010 and the first half of 2011, it's not particularly surprising to see a prolonged consolidation here. Priceline's Nov. 9 announcement that it would acquire fellow online travel company Kayak (KYAK) sent the price temporarily lower, but it has since regained those modest losses.
One thing I certainly don't like about the chart: The 50-day line is below the 200-day, which does not bode well for a strong rally. When that situation reverses, however, it may present a good buying opportunity. Another problem is that the number of U.S.-based hedge fund and mutual fund owners did not grow in the most recent quarter. With institutions in essentially wait-and-see mode, the stock will have a difficulty showing price appreciation.
Earnings forecasts currently bode well for further institutional investment, however. Analysts are eyeing an earnings gain of 32% this year, to $30.87 per share. Next year, that's seen rising another 21%, to $37.42 per share.
Another large-cap growth favorite finding 200-day support is Cerner (CERN). The maker of medical records software has been consolidating since June. The company has a penchant for making high-profile deal announcements: Last week, it unveiled an initiative that would let doctors monitor babies and their mothers via Apple (AAPL) iPhones and iPads. It also announced an automated records-management system customized for NBA players. All 30 NBA teams will be using the platform.
There are a couple similarities to Priceline. Here, too, analysts expect double-digit earnings gains in the next two years. Income is seen coming in at $2.36 per share this year, up 26%. Next year, that's forecast to grow another 18%, to $2.78 per share. Also, Cerner's 200-day line is currently hovering above its 50-day line, with the two running essentially parallel as of Tuesday. Institutional ownership weakened slightly in the most recent quarter, correlating with the five-month price consolidation.
One potentially bullish observation about the chart: The stock retreated to a low of $67.64 on Oct. 25 and closed that session 8% below its 200-day line.
That doesn't sound particularly bullish on the surface, but the pullback significantly undercut its prior consolidation, which bottomed out at $75.57 on June 1. That type of action frequently flushes out holders lacking in conviction and sets up the stock for a fresh run-up when new money eventually comes in.