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July 14, 2010

|Includes: ADTN, APKT, CTSH, Deckers Outdoor Corporation (DECK), IGTE, VIT

Considering the market’s price/volume action of late, any and all short “operations” are most definitely off the table for now.  As I wrote in my last commentary, if this market has one thing going for it it’s that nobody with a capital “N” believes it can rally for any significant amount of time.  Also, as an anecdotal aside, I am seeing a plethora of negative headlines regarding both the stock market and the economy lately.  They say in the newspaper biz that “if it bleeds, it leads” – well, in the same vein, “doom and gloom; we got the room.”


Without getting into head and shoulders patterns and all of that again, let’s just reiterate how the market aims to frustrate the most people it can.  Looks like it’s done it yet again.  For now, at least.  Still, there are positives just below the surface, should one care enough to look for them.  These come in the form of how stocks of all stripes are presently consolidating, even within a dreaded pattern like the head and shoulders, which seems to be everywhere.   


Take DECK, for example.  From one perspective, DECK is in an improper head and shoulders pattern and is presently in the “right shoulder” phase.  Another perspective is that for the last two and a half weeks DECK has been forming what could end up being a pretty tight bottom of a pattern that is as yet unknown.  It would need another month or so to set up properly, of course, but this is the type of action that you want to keep an eye on as the outcome can tell you oodles (yes, oodles) about the underlining health of the market. If you notice bases starting to get wide and loose or one after another falling apart then that could be an early signal that the rally is headed for trouble. 


Until then, however, a few throw away ideas….


Given the kind of day IGTE had today, I once again consider VIT buyable on any sign of strength.  The stock broke out on powerful volume on 7/8 and has since pulled right back on descending volume to the proper “pivot,” as many stocks are wont to do. IGTE, VIT and CTSH makes three in a group that is now most definitely exhibiting institutional sponsorship.  My cut-loss for VIT would be around the 20/21 day moving average, whichever you prefer.  That would mean a 4-5% loss at the most.  Seems pretty reasonable to me.   Refer to my “July 11, 2010” commentary for a list of the strongest industry groups (and the best stocks in those groups) and add “Computer-tech Services” to it.  And, while you’re at it, why not add the “Telecom-cable/satl  Eqp” group too.  APKT and ADTN are the ones to watch there.     


APKT is a nice example of an ascending base breakout.  It’s still buyable, if you ask me, especially given the confirming action in ADTN, which broke out of a cup with handle today on volume that was 528% above average.  ADTN is no thin stock that trades 150K shares a day, mind you, but a stock that trades about 900K shares a day.  Think institutional players are piling in?  APKT’s volume was around 135% above average today and given that it already trades north of a million shares a day something tells me there’s something a-brewin’ there.


Overall, things are looking up but with certain indexes now at pretty obvious resistance zones we’ll soon see what this rally is made of.  The caveat is this: should we get a powerful, high volume negative-reversal one of these days, don’t be a simp.  Protect your capital.  Either get short or get in cash.  And quick.            


NOTE: Given the season we find ourselves in, if you buy or short a stock here make sure to check the date it reports earnings.  We live in the era of “Reg FD,” a regulation that has cost more traders more money than any regulation that I can think of (though, I admit, I’m not thinking all that hard), and you have to be on your toes.        

Disclosure: Long: VMW and BRK.B