Embracing the Market's Volatility: My Investment Grocery List

Includes: DIA, QQQ
by: David M. Gordon

I neither like nor enjoy being wrong. Most recently the market proved me wrong by not turning down as I had expected. But I live with such occurrences (well, non-occurrences), as I also have learned that I am always wrong. (A tale for another time.) So I not only live with it; I work with it. How? By focusing my attention at all times on those investment opportunities I deem worthy. Not to sow additional confusion, but there is a bullish perspective to consider...

Dow Theory tracks divergences; when the Transports and Industrials averages strike new highs concurrently (not necessarily simultaneously), then such action confirms a bull market. With all three Dow averages now at new all-time highs, the market is at its first triple all-time high in nine years. (The last time all three indices made new highs was on March 17, 1998.) Since 1929 (78 years!), this event has occurred on only sixteen occasions.




Obviously, there is no divergence in these crucial averages, so Dow Theory is in upside sync. Please do not forget that oscillations of price will occur across the spectrum of periodicities, especially the shorter term, and at any time.

Included below is the NASDAQ Composite for the purpose of comparison...


Okay, so what does this mean to me, to you? That despite my sometimes unnecessary concerns regarding the market's dynamics, patterns, and setups, I keep right on investing; that is, buying. Sans various ploys to hedge one's portfolio, there do exist methods to retain upside exposure (profits) while reducing risk (losses). I have shared previously the high level consolidation; together, we found near twenty (20) stocks that trade in this profoundly bullish base for nigh on a decade now; in fact, several selections break out and up to new all-time highs.

Another method is to purchase relative lows; the presumed bottom of the base. Be careful, however; if you do not know how to recognize this type of setup, risk increases while reward decreases, and will frustrate only yourself as you watch other opportunities you did not purchase go higher without you.

Once again, I share below my master list of those opportunities I favor. The list is not complete; for example, I skip the resources sector (e.g., oil, metals, and uraniums). Too, it is necessarily sketchy; I will flesh out my reasoning in future posts that will limn the whys and hows for each opportunity.

1) Apple (NASDAQ:AAPL): It is early yet in this presumed base, but to date it shapes up as a shallow correction, more of time than price. In fact, the low end of the range - and my optimal purchase point assuming the bullish resolution - occurs at ~$77.

2) Abbott Labs (NYSE:ABT): Massive high level consolidation that sets up as bullish across its daily, weekly, and monthly periodicities.

3) Arena Pharmaceuticals (NASDAQ:ARNA): Prepares to assault the $20 level... which is ~40% from here!

4) Avery-Denison (NYSE:AVY): A reader recommends this one; I agree. Great story, great chart!

5) Anheuser Busch (NYSE:BUD): See comment above, although BUD requires more work (time).

6) Colgate-Palmolive (NYSE:CL)

7) Clorox (NYSE:CLX): The train leaves the station for these two (CL and CLX), as they emerge from their profoundly bullish high level consolidations into all-time highs. Each might hesitate, albeit briefly, in that phenomenon known as trader's remorse.

8) Comerica (NYSE:CMA): Another reader recommendation with which I agree. Great opportunity, great chart!

9) Chipotle Mexican Grill (NYSE:CMG): Discussed here repeatedly. The shares continue in its great looking (to date), intermediate term base. Will its earnings report provide the catalyst to break out and up?

10) Genentech (DNA): Also discussed previously. Begins slowly to emerge from its lengthy (time) but shallow (price) consolidation.

11) General Mills (NYSE:GIS): This stock has been a leader to the upside for those stocks that continue trading in their high level consolidation. I prefer to buy it down; i.e., lower -- say on or near its 200 day sma.

12) Google (NASDAQ:GOOG): What more can I say? The stock continues in its high level consolidation, trading between $513 and $325; I believe, however, a new floor builds at $450. I would be very surprised to see it trade beneath that level. The investment firm, Amtech, likewise thinks that GOOG is:

"...interesting here after pulling back $40 following an in-line quarter and re-testing the $455-460 levels. Firm says that the problem is not with GOOG's business, but that expectations have caught up. Because it no longer seems to have the upside surprise factor, the firm says the stock correction is not really surprising, but they think valuation reflects this reality. Firm says a quick look at other mega-cap software names shows that GOOG is relatively cheap given its superior growth."

This is, in a nutshell, precisely what I have been stating here, lo these past many months.

13) Heinz (HNZ): In gear to the upside on the daily chart, it remains in its high level consolidation basis the monthly.

14) Hologic (NASDAQ:HOLX): Discussed previously (months ago), it recently emerged into new all time highs after a lengthy (time) but shallow (price) consolidation.

15) Isis Pharmaceuticals (ISIS): Continues to probe, but hold at, crucial support at $10, at which price it represents a low risk, high reward probability.

16) Intuitive Surgical (NASDAQ:ISRG):

click to enlarge


Note ISRG consolidates its breakout above the line of declining tops. Once resistance, now support. For how much longer will this minor consolidation continue before heading for $200/share? Does it await the simple moving averages to catch up to price action?

17) Johnson & Johnson (NYSE:JNJ): Ideal purchase at ~$61; however, the shares might not decline even that low.

18) Kellogg (NYSE:K): The huge base continues to build; its breakout lies at $51. The longer K trades sideways in this high level consolidation, the bigger the upside price movement when it fiinally occurs. The breakout is so close, one might as well await the signal itself. Unless the shares first decline sufficiently to diminish the risk.

19) Kimberley Clark (NYSE:KMB): Same comment above re K.

20) Coca Cola (NYSE:KO): Already discussed.

21) Qualcomm (NASDAQ:QCOM): Thursday's move negates the budding bearish setup. Watch shorts scramble for cover.

22) Research in Motion (RIMM): Building a new intermediate term base, and a shallow one at that, after an explosive upside move (~100%).

23) Starbucks (NASDAQ:SBUX): Long favored, I trade around its oscillations. This monthly chart (below) shows the possible ascending triangle, which is one reason I purchased recently some shares...


The daily basis chart (above) shows why purchases at or near the rising bottoms line make for a good speculation, and is a second reason I purchased. The stop is immediately beneath your acquisition price and it (the price) continues to rise, which means even if the stock breaches the line to the downside, your stop level might represent a profit. (I admit that purchasing such a setup is not for everyone, especially those for whom certainty is a key requirement.)

24) Snap-On Tools (NYSE:SNA): Big base breakout at ~$46; the stock retraces to test that breakout.

25) Suntrust Banks (NYSE:STI): Another reader recommendation, and a fine selection at that!

26) Triumph Group (NYSE:TGI): Discussed already, and at length.

27) Under Armour (NYSE:UA): Will UA decline to ~$43? Its decline to date proves to be comparatively shallow.

28) Unilever (NYSE:UL): A reader proposes; I agree. Its recent short term retracment to point of breakout appears complete.

29) MEMC Electronic (WFR): Discussed previously.

30) Wal-Mart (NYSE:WMT): Discussed previously, most recently in my chatter re high evel consolidations.

31) Yahoo (YHOO): Interesting hedge of a sort to GOOG; as GOOG trades in its high level consolidation, investment money will power higher YHOO.

32) Quicksilver (NYSE:ZQK): Discussed previously, and at length.

33) Zumiez (NASDAQ:ZUMZ): Discussed previously.

Okay, there you have it; my investment grocery list. Please recall that the names rarely change, only the prices. And that investors need not fear oscillations in prices and trends, but instead embrace them; those oscillations create our opportunities as investors. Too, this post has been necessarily brief, as the markets open soon; I intend to offer more of my thoughts both as new posts devoted to specific opportunities (those, at least, for which I have yet to offer my remarks) and in reply to your questions and comments (to this post). Of which I hope there will be many.