Looking for Strong Stocks - Stocks In Uptrends

Scanning through the S&P 500 to find stocks in decently definable uptrends gives us thirty four stocks.  Ten of these thirty four stocks are utilities.  This is not surprising as the summer usually sees utility earnings ramp up with the use of air conditioners and traders play those earnings by buying up the stock.  Another reason to own a utility stock in a market as fickle as this one is that they usually pay a solid dividend, and a dividend is at least some cushion to downside exposure.

Of the remaining twenty four stocks we see no less than ten stocks I have previously recommended.  All ten of these stocks are now higher than when I first wrote about them.  First, let’s tackle the utilities;

Company	Ticker	Dividend %	Uptrend Move	Uptrend Since	% from Uptrend Line
Northeast Util.	NU	3.50	14.7%	June 30	0.4%
Pepco Holdings	POM	5.80	17.8	July 1	1.3
Progress Energy	PGN	5.70	15.8	June 4	1.6
Cons Edison	ED	4.90	16.1	June 4	0.8
Centerpoint	CNP	5.10	17.2	July 2	2.0
CMS Energy	CMS	3.40	20.8	July 2	0.1
Sempra Energy	SRE	2.90	19.6	June 4	3.4
Ameren Corp.	AEE	5.40	19.2	July 1	0.4
PG&E Corp.	PCG	3.80	17.7	July 2	2.0
Southern Co.	SO	4.90	14.8	June 4	1.6
S&P 500			2.5	June 4
S&P 500			6.2	July 1

As you can see the move by those utilities that have a decently definable uptrend outperformed the S&P 500 by a good amount.  It is important to note this list is not all utilities and it is just the utilities that the market decided to buy up.  What this does illustrate is that stocks that get into an uptrend can be bought after the trend is established with expectations that the uptrend will continue.  The best example of this is Pepco (POM); you could have bought POM on the third time it hit its uptrend line on August 12th and still made 7.4% while the S&P 500 from the 12th to today returned less than 1%.

As the summer is ending the utility trade may be getting old, but the July, August and September months of the third quarter are still to be reported when earnings season opens up at the end of this month.

The best thing about buying stocks with a definable uptrend line is that it will tell you when to sell.  This sell signal is simply when the stock CLOSES more than 2% below the uptrend line.  (For more information on how to properly draw a trend line and the rules about sell signals see www.StockTradingCards.com)

The ‘% From Uptrend Line’ column tells you how far above the trend line the stock currently is as ideally you would like to buy the stock as cheap as possible, i.e. on the uptrend line.

Newton’s First Law states that an object in motion will remain in motion unless acted up by an outside force.  While Newton was not thinking about stocks when he came up with this Law, stocks do tend to follow their trends until they do not.  Whether the force that knocks them out of their trend is news or a weak market, the advantage of owning a stock in an uptrend is that the trend line tells you when to get out very clearly.  A stock that is in an easily defined uptrend benefits from the fact that other market players see the uptrend and when that stock comes back to that line buyers show up at the line helping “this stock in motion to remain in motion.”

Many of the following stocks I am mentioning in this article, I have already written about and the links to my past articles will be highlighted.  It might be a good idea to read up on a stock you are thinking about, yes?

Two Dow Jones Industrial Average stocks have been in uptrends and look strong.  These two are Coca-Cola Inc. (KO) and McDonalds Corp. (MCD) with McDonalds being at an all time high.  It looks like that dollar menu is working.

In the agricultural sector Archer Daniels Midland Co. (ADM) and Mosaic Co. (MOS) have uptrends.  I mentioned ADM and MOS in separate pieces on August 17th.  MOS is in the same business as Potash (POT) which has buyers fighting over the company.  This bidding war or possible buyout has jumped the price of MOS and it is possible that the loser buys MOS.  Even if MOS is not bought, the premium being paid for POT relative to where it was trading prior to August 17th has increased the P/E multiple for the industry.  Speculating on a stock to be bought is not a good business to be in, but if all the investors from POT get paid on that stock it is also possible they turn around, as they liked the business enough to buy POT, and buy MOS.  Russia lost a lot of wheat fields to fires and heat causing them to cancel wheat exports.  ADM is in this business and as the price of wheat goes higher so does the price of ADM stock. 

On August 5th I mentioned DBA as the ETF (exchange traded fund) for soft agricultural goods.  Wheat spiked on the Russian lockdown on exports and so did the DBA.  The DBA is higher now than on the 5th and in a nice uptrend.  (as I am typing this article, on Fast Money on CNBC Dennis Gartman, a very highly regarded commodities trader, and the other talking heads are saying the ‘Ag’ trade has legs to run higher)

If you are a technology bull you may not be surprised that the next twelve stocks mentioned are in nice uptrends and are all in the information technology space.  Some of these stocks I mentioned much lower as early as June 11th.  I mentioned Entropic Communications Inc. (ENTR) on July 7th at $6.80 and it closed today at $8.30 (+22%).  On Jim Cramer’s Mad Money on CNBC (as i type this) he is talking about two stocks I mentioned on June 11th; Akamai Technologies Inc. (AKAM) and VMWare Inc. (VMW).  Since I recommended these two stocks they are up 14% and 18.8% respectively.  Both of these stocks are still in nice uptrends and look poised to go higher.

Also mentioned in that same article on June 11th are Salesforce.com Inc. (CRM), Netflix Inc. (NFLX), F5 Networks Inc. (FFIV) and Autozone Inc. (AZO).  These stocks are now up 23.8%, 17.5%, 33.7% and 15.4% respectively.  I have mentioned these stocks in more articles than one and all four are still in nice uptrends.

Other stocks in nice uptrends: EXPE, PM, MO, EBAY, CTSH, RHT, ARUN, RDWR, INTU and ASYS.

The best thing about uptrend lines is that if you buy the stock and it breaks down below the line, the line is telling you to sell it so that your loss is minimized.  (For more on how to identify these wonderful money makers called uptrend lines see www.stocktradingcards.com)

When I wrote my past articles some of these stocks were at their all time highs.  A lot of people are afraid to buy stocks at all time highs as they do not want to pay ‘too much.’  Well, these stocks have kept going higher this summer while the market lurched up and down and pretty much went nowhere.  Everyone wants to buy a stock that is way down which all of a sudden magically turns higher and runs like a madman.  The problem with this is there would not be sayings on Wall Street like “Don’t try to catch a falling knife” if bottom picking a stock was easy.

Myself, I would rather hitch a ride on a north traveling train and go further north than jump a southbound ride hoping it turns north someday.

An object in motion remains in motion…

PS – Look for my past gold articles as today we had another all time high in gold.

 

Tuesday, September 7, 2010 - 7 p.m.