Money
& Investing 
To Adapt to the Changing Seasons of the Market,
Look for New Highs,
Beware of “Overhead Resistance”
Like a winter storm blowing, howling and knocking things over, the stock market went through a nasty season from November 2007 through February 2008. Many issues were damaged, suffering severe losses of 30 percent, 40 percent or even more.
For most bullish investors, it was like being in a deep freeze, with the only strong sectors being the fertilizer and coal stocks.
Fortunately, a year ago (March 2007), we did a story in this section of the Exchange called "Turning Corn into Dough, the Goal for Mosaic, Potash and Agrium, Inc."
They did just that! The stocks worked great the next 12 months as Potash Corp. (POT) soared from $50 to $152 and Mosaic Co. (MOS) from $25 to $109.
Now, bullish investors need to adapt and be on the lookout for new leaders and special situation plays because, after every bear market storm, comes the calm and new opportunities. One also needs to be aware of some technical finesse too.
One of the most important things eSignal users need to watch is for stocks making new 52-week highs. That is because you want to be alert for the development of new market leaders, and the new high list is where you will find them.
Who will they be? The market itself will point the finger. Generally, though, the leaders of the prior bull market, such as Apple Inc. (AAPL) and Research in Motion Ltd. (RIMM), will not be the leaders in a new bull market.
Another key factor will be to see if any stocks making new highs are clustered in one industry group or sector. That could signal the development of a new technology that could power those stocks higher for some time, provided earnings are strong.
On a technical basis, one of the key reasons to seek stocks making new highs is so as not to make the mistake of going with a stock with “heavy overhead resistance” or what some call “overhead supply”.
Take the case of Apple, which was one of the great performers of the recent bull market. A weekly chart shows the stock peaking around 200 in December. Apple then fell all the way down to $121, a 39 percent decline (as of mid-February 2007).
The stock now has heavy overhead resistance in the $170 to $200 area (see chart). What that means is investors who bought in that area are now losing money. All things being equal -- and human nature being what it is -- if Apple’s stock should turn and try to move higher, those investors will most likely be anxious to sell to breakeven. So, that selling, in theory, will inhibit Apple’s stock from moving up and through the resistance area.
The principle of “overhead resistance” will apply to many stocks in the market now. The severity of the overhead resistance for a stock can be measured, to some extent, by considering the amount of volume traded at the higher prices.
Right now, what are some stocks that have potential clear sailing with no overhead resistance?
One is Axsys Technologies Inc. (AXYS), a maker of opto-electronic products. The firm with annual sales of $160 million, sells to the aerospace, telecom and defense industries. Axsys’ camera products are used for border surveillance in the U.S.
The company recently boosted its forecast of earnings this year from $1.70 to $1.75 a share -- a 34 percent to 38 percent gain over the $1.27 a share in 2007. The stock broke out of a base at $40 and hit a new high at $48.18 in mid-February. The stock has tripled in the past two years and continues to act strong.
Another issue working well is Ireland-based Icon Plc (ICLR), a provider of clinical research for the drug industries. It has annual sales of $867 million. The company posted a 45 percent increase in operating earnings for 2007. This year, analysts expect net to climb 27 percent.
The stock gapped higher on big volume in mid-February after reporting its upbeat earnings. It hit a new high at $71.06. In the past two years, the stock has soared from $20 -- a 255 percent gain. Interestingly, seven Wall Street analysts are following the stock -- all have a strong buy rating.
Mr. Fasciocco’s is publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several national publications. To get a free trial temporary subscription to the Ticker Tape Digest Pro Report, which comes out daily with a stock market video show, go to www.tickertapedigest.com and insert username: freetrial and password: stocks. Mr. Fasciocco can be reached at: leo2@tickertapedigest.com
