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VPRT review and setup

February 16, 2007
tags: ,

Hello all,

Sorry to leave so much time between posts lately. Rehearsals have got the best of me right now and I’m just not finding enough time to look at the market intelligently, much less make worthwhile blog posts. The BHI credit spread post will have to wait too since it will take more brain power for me to put together.

Boy, whoever wrote the last post on this blog sure had it wrong about the channel being broken. Amazing strength the past few days. But let’s not forget that the Nasdaq is still not quite above resistance. And while the SPX is somewhat out in the clear, the OEX hasn’t quite gotten there. The Russell 2000 looks like it’s not quite ready to make the charge.
The NDX looks like it could even be working on the right shoulder of a head and shoulders pattern. A move down to and through the 1760 area would be the confirmation of that pattern. It may well be shattered soon, though, to the upside.

Don’t get me wrong. The market is clearly bullish right now and it will be so until it turns around, which it hasn’t yet done. I just want to point out some of the things that aren’t quite as rosy looking as the Dow Industrials. Going into the three day weekend, I would expect to see some profit taking, unloading a bit of risk going into the three day weekend.

I wanted to share this chart of VPRT that I just mocked up for a friend. I mentioned this stock some months ago at a meeting or two and mentioned before that I have a paper position on it. I’ve gotten the impression that Jim has mentioned the idea of buying on a “close above the high of the low day.” This is a good way of buying pullbacks, particularly in conjunction with a stock that is coming into likely support.

I really like the looks of this stock. The fundamental scores are really nice. It seems that the P/E could be a touch high and some cause for concern, but if they’re really growing at a rate of 34% annually, then people are apparently willing to pay up for it.

There is a good looking Cup and Handle pattern here. I bought on a pullback to old resistance/new support in anticipation of a forming handle for the cup already in place. Indeed, the stock did move up and through the buy point(.10 above the high of the right side of the cup) and with a big volume spike. On a pullback to new support, I added 1/2 again the size of the first position. Normally, I wouldn’t want to buy right before earnings, but with a buffer zone of profits already and some degree of confidence in the consistency of earnings reports, I was comfortable taking the chance.
(click it to see it bigger)

Notice that the stock has consolidated and pullback a bit to what was old resistance. This could be a very nice “close above the high of the low day” buy on a bounce off new horizontal support as well as the MA.

I’m sure it doesn’t quite work out like this every time, but assuming that this stock does do very well from here on out, I’ve built a position in an ideal way. I may add one more time, but we’ll see. Now it’s just a matter of sitting back and letting the trend do its thing. I will give it some room to breathe along the way in the interest of making this an intermediate to longer term play. Might even do some covered calls on it if it looks like it’s not ready to move higher just yet.

I should note that the big chart ranking on this one is not good. But the group’s chart itself looks quite strong. One real bit of concern is the fair amount of recent insider selling. But with a stock that has been so strong, perhaps it’s natural for them to want to take a little bit off the table. I’m sure they have kids in college or whatever else that the rest of the world has to worry about too.

I hope you’re all taking your share out of this market. Enjoy it while it lasts. Check out this IBD article, Distribution Days Can Signal Market Top.

Have a great weekend.

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