This past week I've been looking around to see what sort of stocks are consistent winners, and have seen a lot of names we've previously owned. One such name is NuVasive (NUVA) a smallish medical device maker which focuses mostly on the spine market.
NuVasive, Inc., a medical device company, engages in the design, development, and marketing of products for the surgical treatment of spine disorders. Its products are used in applications for spine fusion surgery.
As I am trying to process how this market "works" in an increasingly computer-dominated era, it seems momentum truly begets momentum. Having lived through the early 00s firsthand, I tend to be risk averse - while I see the methods I used to employ when I was "young and dumb" in 98 and 99 actually have been working like a charm in many names of late. Summed up in 1 word - that is "chasing". Buying a stock after it gaps up, or is up many percentage points ... not worried about a reversal. Oh of course, one day a reversal happens and the house collapses on itself, but a lot of money can (and is) being made chasing stocks ever upward without regard to valuation. As long as the momentum is up, it seems to computers are willing to keep buying. And it doesn't stop until the chart begins to break down.
As I study what has happened in NuVasive, a name I've been around for many years (in and out), I see after a good earnings report in late April the stock gapped up. [Apr 27, 2009: NuVasive Not for the Faint of Heart] And continued up... and up... until finally stalling out around $39. In fact, it put in a bearish "double top". It then sunk to $34; broke below its 200 day moving average in fact... all bearish. But within a few weeks it jumped back up, and was off to the races again. Then on a simple upgrade in early June - it gapped up again... this took it over the above-mentioned $39... and has not looked back.
Valuation? Well it is slated to make 13 cents in 2009. It has never been cheap but this is at an extreme. [Jul 25, 2008: NuVasive - At What Price Growth? It Appears Any] But as one deciphers the message of this new market, it appears one must learn the ways of the PhD programmed quant computer as much as Graham & Dodd. If not more.
Chase now? One could... but have a tight stop attached to her. Because if the past is any indication, one of these quarters an earnings report will turn speculators... err investors the wrong way and a massive swan dive to fill multiple gaps will occur. Been there, done that with NuVasive.
Disclosure: No position