Filed Under:
Tickers in this Article: CF, ATHN, DPZ, MA
While it's too early to know if the markets rally attempt will stick, the recent bounce had broad participation, which was a positive sign. After the early August swoon on high volume, the recent retest occurred on much lower volume, revealing less conviction on the part of the bears. This is setting the stage for a possible bottom, although there is still much more work and time needed to call this anything more than a market bounce. That being said, rallies that occur in down markets can be extremely powerful, as they are fueled by not only new buying, but also short covering. During these initial rallies, it is important to spot who the possible market leaders are, as they will often remain as leaders throughout the upcoming cycle. Stocks that are already hitting new highs is one way to spot these stocks. For instance, CF Industries Holdings, Inc. (NYSE:CF) was already trading at all-time highs earlier this month, and held well above its base on the markets recent retest of its lows. While CF is too extended to chase at these levels, it is clearly displaying great relative strength. This is a stock to keep on the radar if the market indeed forms an intermediate low.

Athenahealth, Inc. (Nasdaq:ATHN) is another stock that managed to hold above its prior base during the markets recent retest of its lows. ATHN had a powerful gap in late July, and while the continuation move was short lived, ATHN did manage to hold above the breakout area. ATHN is now starting to bounce from these levels, and could be ready to resume the initial breakout. (For more, see 5 Strong Stocks Poised For A Breakout.)

MasterCard Incorporated (NYSE:MA) is another possible emerging leader, as it has held above the $300 level since gapping on its recent news related to debit card transaction fees. The news was well received by market participants, and MA has remained near its all-time highs, despite an increase in volatility. Traders should keep a close eye on the $300 level as an important support level. As long as MA remains above this level, it should set the stage for a push to new all-time highs.

Domino's Pizza Inc Common Stock (NYSE:DPZ) is another stock that has remained incredibly resilient to the recent market weakness. DPZ had gapped higher in May and continued higher by several points. After settling into a consolidation, DPZ refused to give up much of its base. While the secondary breakout in late July failed, DPZ did rebound from the $24 level and is now just a few points from all-time highs again.

The Bottom Line
Trading in bear markets can often be tricky as many rally attempts fail rather quickly. While its still up in the air as to whether the markets are in a new bear phase or in a correction, the path of least resistance remains lower. By sticking with emerging leaders, traders can position themselves in stocks that have already proven themselves, and possibly continue if the markets remain strong. If the markets fall apart and resume their downtrend, then these stocks should suffer less than stocks in clear distribution. (For more, see The Basics Of Technical Analysis.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article

comments powered by Disqus
Trading Center