The rally that began on September 1 continues to look good, though there’s clearly some rotation going on underneath the surface. Last week, most stocks related to the cloud computing movement topped out, at least in the intermediate-term. That’s not to say all those names are going to zero, but at the very least, cloud stocks are going to have to take a few weeks, if not months, to rebuild some bases.
My point here is that, even though we’re in a general bull trend, you don’t just buy stocks and sit on them for six months. You must monitor your holdings, especially as earnings reports start coming out. And the plan is relatively simple—get rid of any stocks that break down, take a few profits (or partial profits) on the way up, and always be on the lookout for new leadership stocks at logical buy points.
One way to find new buy candidates is to identify already-strong stocks that don’t report earnings for a few weeks that have tightened up … a sign that big investors aren’t unloading shares despite the recent run-up. One idea on that front is Silver Wheaton (SLW), part of the super-strong precious metals group. The stock recent marched higher an impressive 11 weeks in a row on big volume. Sales and earnings growth are huge, and the stock has been chopping around the 26-to-28 area for three weeks. A shakeout down to 25, or another week or two in this range, could present a new buy point.
Another option when building your Watch List is to look for a big, liquid leader that has the potential to gap up on earnings. One near the top of my own list: Amazon.com (AMZN). While the Kindle e-book reader is still selling well (thanks to a recent price cut), I think the bigger story is simple—e-commerce is becoming a larger piece of general retail sales, and Amazon itself is becoming a bigger chunk of e-commerce sales!
I also like that, after a good run in 2009, AMZN really did nothing from January through the end of August; that’s enough time, with enough of a correction, to shake out all the weak hands. However, after finding massive-volume support along its lows in July, Amazon tightened up in August and then moved straight up in September, from 131 to 162.
Now shares have chopped around for three weeks as investors wait on earnings, which are due out next Thursday. Any substantial gap up would be a green light to dive in.