Ryan R Henry's  Instablog

Since the 1^st quarter of 2009, it’s been relatively easy to find winning stock trades. Or like one of my trading friends likes to say: A drunk monkey throwing darts could beat this market. If you look at the technicals of the market advance that has been in play since March of this year, it becomes clear why it’s been so easy. The NYSE Bullish Percent Index, which basically tracks the number of stocks on the broad NYSE index that are in established up trends, has hit new all-time highs in recent months. That means that this advance is the most widely-participated up move that has occurred since at least the ‘80s. The current market condition will inevitably change, which means it will become more difficult to nail down the winners in coming months. Fortunately, there’s a proven way to find stocks that are set to outperform the rest of the market. Elliott Wave is a theory that forecasts future movement, based on current price patterns. It can be applied to market indexes, individual stocks, or just about anything that can be plotted on a price chart. At any given time, a screen of the general stock population will return at least a handful of patterns that indicate pending breakouts, as well as a number of breakdowns. These patterns can be singled out and monitored for “actionable” price movement. If the news wire or basic fundamental information on any of these stocks doesn’t provide any surprises, we will be left with a great opportunity for profit.  Here are a few stocks that are poised to outperform:

 

Lifepoint failed to participate in market strength over the summer, but has found renewed purpose in the past two months. A successful test of its 50 and 200-day moving averages leaves Lifepoint at new advance highs, and poised for further strength ahead. As long as price is able to stay above 28.00 from here, this stock will be pointing to the 38.00-40.00 area. From a fundamental standpoint, Lifepoint has shown steady progress in terms of its revenue growth while maintaining reasonable expenses. It is in a growth industry that is less-dependant on economic forces than most companies, putting itself in a position to continue outperforming regardless of overall market direction.

 

In March of this year, Leucadia moved to its lowest price levels in over seven years. Since that time, the stock has doubled, but the outlook remains promising and still holds the potential of 40% gains from here. The company is largely diversified in its product offering, which makes it less susceptible to industry-related fluctuations. Additionally, they have improving fundamentals, courtesy of intelligent business acquisitions and a focus on identifying undervalued companies for purchase or investment. From a trading standpoint, if price can stay above 21.00, trade above 27.00 is expected to trigger a big up move that carries this stock towards 35.00.

 

First American is approaching their 3^rd quarter earnings announcement on October 29^th, and it’s normally a bad idea to trade stocks ahead of such an important news event. But if the stock price can avoid any surprises heading into November, look for FAF to work its way up to around 38.00 in the coming weeks. The fundamentals of the company are not ideal; over the past few years, the company has realized decreasing revenues and profits. But the company is now moving in the right direction, with profits and income steadily increasing in the past three quarters. Further, First American compares favorably to other companies in the Surety and Title Insurance business, boasting strong earnings per share and margins. The key to trading this stock is making sure price stays above 26.00. As long as it does, the play will be to position long once price trades up to around 34.00.