During market corrections like the one we've been in since early June, it's always a good idea to keep track of the stocks holding their own and showing good relative strength. Two stocks that have held up remarkably well over the past month are Google (GOOG) and Priceline (PCLN), which also happen to be liquid, high-priced institutional favorites with solid earning and sales growth. The fact that they've remained resilient in the face of this pullback indicates institutions are unwilling to part with these two darlings, and that they could be ready to lead once the overall market resumes its uptrend. To be clear, my overall take on the market remains slanted toward the bearish side, as the price action and volume patterns have indicated that the trend, at least for now, is lower. However, GOOG and PCLN sit high atop my watchlist for go-to stocks to buy whenever the overall pressure on the market is alleviated. Let's examine both stocks' charts below, first on a weekly basis and then on the daily time frame:
On the weekly chart of GOOG going back to late 2006, we can see the stock first broke above resistance at 650 in August of 2012 after basing below that level for more than two-and-a-half years. After pulling back in November 2012 to re-test that level, where the stock found support at previous resistance, GOOG proceeded to march higher and break out above the old 2007 highs. Currently, the stock just completed its sixth week in its base, which has corrected less than 8% off the highs set in late May. The base shows many tight weekly closes over the past six weeks, each week closing within roughly 1% of the prior week. This tightness has historically been found in past market winners before taking off to new highs, as it's an indication of institutional support. If big market participants were aggressively dumping their shares, the price action would obviously be much more erratic and less orderly.
Zooming in to the daily chart, we can get a clearer picture of GOOG's current base structure. The 50-day moving average has acted as support twice in June, the most recent of which created a higher low. This strength is especially impressive when juxtaposed against the chart of the QQQ or SPY, both of which are trading below their respective 50-day moving averages. Volatility has been contracting in the pattern, suggesting GOOG could soon make an attempt to break above its descending trendline. If the market were healthier, I'd likely put on a position now and add on a breakout above the downtrend line or above ultimate resistance around 920, but for now I'm just keeping it on watch.
PCLN has been a true market leader since the market rally began in 2009, increasing more than 400% since its first-stage breakout in August of '09. The stock spent nearly a year basing from mid-2011 to early 2012, until finally breaking above resistance in the 560s. PCLN would go on to form a base-on-base pattern, using the prior old highs as support, until making another move to new highs this May. Similar to GOOG, PCLN has also closed tightly the past few weeks, as it's formed a new six-month-long base between roughly 850 and 790.
PCLN's daily chart shows the long consolidation from which the stock recently emerged. Recent turbulence in the general market hasn't caused PCLN to give up its breakout; in fact, pullbacks have been getting support right around the old highs of 775. At less than 2.5% away from new highs, PCLN's relative strength is certainly impressive. In full disclosure, I am long the stock and have held it through the market correction, as it never broke below my original entry point. If the market were to follow through and PCLN crossed resistance at 841, I'd likely add to the position.
To summarize, GOOG and PCLN are both: 1) above their rising 50-day moving averages while the market indices remain trapped below theirs; 2) trading tightly over the past six weeks despite the correction in the overall market; and 3) appearing poised to break out to new highs should the market firm up. Once we return to a healthier overall market environment, I'd look for these two names to lead the way higher.
No comments:
Post a Comment