Despite a cluster of big distributional selling days from 2/22 through 3/10, along with political instability in the Middle East and natural disasters in Japan, the market remains incredibly resilient. The V-shaped bounce-back witnessed in the past couple weeks resembles a beach ball temporarily held underwater -- only to be released and come soaring back up. After a brief dip below the 20 and 50-day moving averages, the SPX now lies above both major points of reference.
Although the market could encounter some overhead supply as it moves up to the 1330 area, the recent strength warrants a hunt for new set-ups to play if this rebound continues. In screening for stocks, I look for names with ROE>15%, >15% EPS growth this year, and >20% EPS growth quarter-over-quarter. This way, my list will contain fundamentally-solid stocks that look poised to move higher technically.
AIRM has shown great relative strength versus the overall market, as it consolidated between 55 and 60 while the market corrected. After breaking through 60 on greater than 6x average volume, the stock is now flagging. The low volume consolidation in the flag is encouraging, especially after such a high-volume ramp. Look for a clearance of 66 to lead to further gains.
EL has been digesting its gains ever since it gapped up in early February on monster volume. The stock found sellers around 95.50 in the middle of last month, but the bears never gained any traction as bulls defended the 50-day moving average. EL now looks ready to take out its recent high and move into new all-time high territory. The lack of any big selling days is encouraging, as it demonstrates that those who purchased the stock on the gap higher are holding on for more upside. The strength out of industry-mate ULTA, which is sitting at all-time highs, is another positive factor.
The weekly chart of HOC shows a stock that has consolidated for six weeks after an impressive prior uptrend. The recent high of 62 corresponds with the highs seen in late 2007 around 64. Should the stock plow through those levels of resistance, a retest of all-time highs at 75 appears likely.
WY currently rests inside a well-defined 2-month range with clear support at 23 and resistance at 25. If the stock can clear that upper ceiling, there's the possibility for it to enter a "vacuum," as there doesn't appear to be much price-by-volume from the stock's slide in the summer of 2010. In other words, the stock's decline in May of 2010 was rather quick, so there shouldn't be many bag holders anxious to sell should WY climb back into the upper-20s.
UNP's current base has a strong resemblance to the consolidation it put in between May and August of 2010. During the summer, the stock found resistance three times at 77.50, only to break out thereafter. Currently, UNP has been rejected at 99.50 twice, so if history repeats itself sellers could knock it down once more before the eventual move higher. After breaking out in August, UNP made a 22-point move in slightly over four months; a similar move would take the stock to 121.50.
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