Slow and Steady

• Posted by Joe Fahmy
• on February 23rd, 2010

The NASDAQ Composite bounced off 2100 on February 5th and ran approximately 150 points in nine trading days. After these types of gains, it is normal to expect some form of consolidation. When the indexes barely pullback on light volume, as they did on Monday, I view this action as constructive and healthy.

Over the past week, I have noticed a number of decent breakouts. Examples include $CAGC $DNDN $NETL $ISRG $SMCI. What impresses me the most is that these stocks are moving higher on strong volume and pulling back on light volume, a very healthy sign. In addition, many stocks are forming the right side of their bases and look like they could breakout soon.

I still recommend keeping positions light, but I would look to increase your investment levels as you begin to see a profit (that way you have a cushion to work with). For example, I have slowly increased my market exposure because the initial positions I took over the past 7-10 days have showed me a profit and also because I see more stocks "setting up" that meet my strict investment criteria. I suggest doing this slowly because part of the base-building process involves volatility and shakeouts. In other words, don't jump into the market all at once only to get "shaken out" on what might be a normal pullback day.

As always, maintain a list of stocks holding up well and forming proper bases. Some ideas on my current watch list include: $VPRT $GMCR $PAY $HGSI $BEAV.

One final note: The positive action in $CAGC and $TSTC makes me feel that some China stocks could be setting up soon. It is still too early to buy some of these names, but I would keep them on your radar as they could offer decent entry points over the near-term: $HEAT $CAAS $HMIN $TRIT $CTRP $CGA $HPJ.

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

Follow me on Twitter @jfahmy

Tickers: BEAV, CAAS, CAGC, CGA, CTRP, DNDN, GMCR, HEAT, HGSI, HMIN, HPJ, ISRG, NETL, PAY, SMCI, TRIT, TSTC, VPRT

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