Charts of the Week, Monday July 24th, 2006
Charts of the Week are stocks that appear to be attractive candidates for short- to intermediate-term (2-6 weeks) returns based on analysis of their daily or weekly chart formations and underlying technicals. Support levels may be used as possible stops.
Analysis: MED: This week we review two longs and two shorts that were first highlighted in late May and early June. On the long side, MED has held up remarkably well considering most speculative momentum stocks have suffered greatly recently. First highlighted May 29 at 18.37, the stock backed off and retested its 40-day moving average and then bounced sharply, moving from 14 , to near 21 in just 5-6 days in mid-June, but backed off again, retested and then bounced, and currently is in a flagging-type sideways consolidation just above its moving average. Of course the stock could pull back if the market breaks lower, but it's one to watch because it's held up so well, and normally we find that stocks that hold up the best in bear phases do extremely well when the market does turn, so it's one to keep an eye on. Key support is currently around the 14 ,-15 zone, and on the upside the 21 area represents a definitive line of resistance.
Analysis: ZVXI: Ever since its huge gap up in early November, the stock has been in an intermediate bull phase that's seen it run from the mid single digits to the high teens. The stock has held up remarkably well in the face of a sharp market decline since May. In fact, it's made new all-time highs early this month before recently pulling back with the general market. The moving averages and major uptrend has held, and the stock remains in a strong up-channel, with price support around 13 , and trendline support around 11
Analysis: RAIL: (Short): A major top was broken in early June. The stock collapsed from the 60 area down to the mid-40s. A beautiful bear flag was then formed over the next four weeks, as the stock rallied on lower volume and then rolled over at the top of the channel. It subsequently rolled over and hit a new 2006 low Friday. I believe the stock may still have much more left on the downside. The bottom of the channel measures in the mid-30s, which could be the next target provided the 43-44 zone is taken out. On the upside resistance is at around Thursday's high up around 49 and beyond that the 40-day moving average around 52.
Analysis: STMP: (Short): Originally highlighted after the sharp break of the intermediate uptrend, the stock collapsed in April on heavy volume and rallied back in May in a bear-flag type formation. It failed near the 40-day moving average before rolling over, forming another mini bear flag in mid-June and then getting hammered from that point down to last week's low, which is the lowest level since last October, having reached a secondary support level. So, since it's been down sharply and has been cut in half since its high, I would not be surprised to see this stock snap back or consolidate again. Shorts may consider covering, but I would not do so until a move above 21 or so occurs,where a stop loss may be set. In any case, important resistance is now up in the 24-26 zone. Support at the current level, if broken, could lead to a retest of the September-October lows down around 15
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