15 Nasdaq leaders

Bullish chart patterns and relative performance analysis make these stocks worth buying on dips.

By MoneyShow.com Jan 9, 2012 2:23PM

By Tom Aspray, MoneyShow.com

As noted on Friday, the daily analysis of the PowerShares QQQ Trust (QQQ) shows that it has now started to outperform the S&P 500.

In my weekly Starc band analysis of the Nasdaq 100 stocks, I wanted to concentrate not only on those that were the closest to their weekly Starc+ or Starc- bands, but also on how these stocks had performed against the major averages since October.

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Microsoft (MSFT) is the most overbought, having closed last week at $28.10, just 1.5% below its weekly Starc+ band at $28.54. Of the 15 stocks on the list, all were less than 7% below their Starc+ bands. The average performance of these stocks (since October, from FT.com) was 19.6%.

These stocks outperformed QQQ by 9.5% and the Spyder Trust (SPY) by 6.7%, which is quite impressive for a three-month period. The four companies I will focus on have quite interesting chart patterns that suggest they are likely to continue to outperform the averages.

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Chart AnalysisMicrosoft (MSFT) has just completed a flag formation, lines a and b, dating back to the beginning of 2010. The next chart resistance is at the 2011 highs of $29.46.

  • The flag formation has Fibonacci targets at $34-$35, with the 2007 highs at $37.50
  • Relative performance, or RS analysis, broke its downtrend, line c, in the middle of July
  • The RS line has just moved back above its weighted moving average (WMA) and shows a positive uptrend, line d
  • The weekly on-balance volume (OBV) has not yet confirmed the breakout, as it is still below its downtrend, line e; the daily OBV (not shown) looks strong
  • There is initial support now in the $26.80-$27.20 area

Ross Stores (ROST) operates off-price apparel and home furnishing stores throughout the U.S. It has been on a tear over the past few months, rising from a low of $41.99 to $50.74 last Friday.

  • It is now trading above its monthly Starc+ band, which is at $49.37; though this does not mean that ROST will correct immediately, it is clearly entering a high-risk area
  • The RS line has been in a strong uptrend since early 2010 and broke through resistance, line h, in May
  • The RS line is well above its strongly rising weighted moving average
  • Weekly OBV has not yet confirmed the price highs but is rising strongly; the short-term downtrend (line j) was broken five weeks ago, signaling the recent rally
  • Long-term support in the OBV is at line k, and the daily OBV is very close to making new highs
  • There is first support in the $49 area with more important support now at $46-$47

Amgen (AMGN) staged an impressive breakout two weeks ago, overcoming resistance at $61.80, line a. The major 61.8% Fibonacci retracement resistance is at $72 with the 2005 highs at $86.92.

  • Relative performance broke through its downtrend, line b, in May
  • The RS line is now in a clear uptrend, line c, with higher highs and higher lows
  • Weekly OBV has confirmed the price action, surging through resistance (line d) in early 2010
  • There is good support now in the $61-$62.20 area, with further support at $58

Apollo Group (APOL) is a $7.1 billion education and training services company. It closed strongly last week, as the resistance going back to September 2010 (line f) was overcome.

  • The 50% Fibonacci retracement resistance from the 2009 high of $90 is at $61.74, with the 61.8% resistance at $68.34
  • The two-and-a-half-year downtrend in the RS line was broken in May and has moved further above its rising weighted moving average in the past few weeks
  • Volume increased last week, and the weekly OBV is above its weighted moving average but still below its long-term downtrend, line h
  • The uptrend in the weekly OBV, line i, suggests accumulation
  • There is first support at $54.40, and then at $51.80-$52.20

What It Means: Even though the Nasdaq 100 is still well below the 2011 highs at 2,438, last week’s positive action versus the S&P 500 could be forecasting a good earnings season for the stocks in this index.

Comparing the raw performance data of stocks versus a major average is another way to identify the market-leading stocks.

Three of the four stocks mentioned today have just completed bullish weekly chart formations. Therefore, even though they are currently close to their Starc+ bands, new longs would be favored on a pullback, which should come before the end of January.  Options traders could also look to establish bullish option position on such a pullback.

How to Profit: Those who are currently long Ross Stores might consider hedging part of their position on a move to the $51.50-$52.50 area to lock in some profits.

For Amgen, go 50% long at $62.04 and 50% long at $61.12, with a stop at $58.84 (risk of 7.7%).

For Apollo Group, go 50% long at $62.04 and 50% long at $61.12, with a stop at $58.84 (risk of 7.7%).

From my Sept. 19 recommendation, buyers should be long Microsoft at $25.78, with a stop at $23.42. In December, I again recommended buying at $25.78. On these positions, use a stop at $25.32. I will be looking for another entry point on the first pullback.



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