Tickers in this Article: ESL, ENTG, LAD, VVTV
While it's probably a good idea for the majority of traders to remain on the sidelines until the market's mood improves, many traders will nevertheless attempt to catch the bottom of this pullback. The markets likely need more time to consolidate before any realistic stabs at a lasting bottom can occur. However, the possibility of a near-term bounce is reasonable right now, despite the fact it may not last more than a few days. This creates an opportunity for aggressive traders who are willing to accept the higher chance of a failure.

TUTORIAL: Risk and Diversification

However, I would caution all traders to stick with the stocks that have remained healthy, rather than attempting to catch any former high fliers at a perceived discount. Stocks that remain in a healthy pattern can often stay uncorrelated to the markets for a given time depending on their individual story. They can also participate in any market strength that may occur simply by remaining in a good position after withstanding general selling pressure. Esterline Technologies Corporation (NYSE:ESL), for instance, has remained above its prior base despite the market pullback we have seen over the past several weeks. If the markets can stabilize, it could lead to a continuation move higher for ESL, which happens to be just a couple of points from its all-time highs. (For more, see The Anatomy Of Trading Breakouts.)


Source: StockCharts.com

A stock doesn't have to be within spitting distance of all-time highs to show relative strength either. Entegris (Nasdaq:ENTG) has continued to consolidate in its base and has remained near the top of the base throughout the recent market weakness. This reveals an underlying bid that refuses to let go of the stock, even in the face of market pressure. These are the kinds of stocks that can experience a powerful breakout once the markets stabilize. A move above $9.50 would certainly catch my attention in ENTG.

Source: StockCharts.com

Lithia Motors
(NYSE:LAD) has certainly been volatile day to day, but generally speaking, it has continued to trade in a base-on-base pattern. It cleared a base on a powerful gap late in April, and has settled into a secondary consolidation above the prior base. This action is certainly stronger than the general markets, which have been steadily falling for several weeks. Traders should keep an eye on the $16 level, which has been holding on any pullbacks.

Source: StockCharts.com
While ValueVision Media (Nasdaq:VVTV) hasn't cleared its base, it has been showing some relative strength by rising gradually over the past two months - in direct opposition to the general markets. Overall, it has been basing between $5.50 and $7.50; traders should be watching for a move to either side of the channel. If the market situation improves, it is likely that VVTV will attempt a breakout. (For more, see Channeling: Charting A Path To Success.)


Source: StockCharts.com
The Bottom Line
The current environment is certainly difficult at best. The markets have been fairly weak over the past month and are starting to get oversold. While the markets will likely need more time to stabilize, the chances of a near-term bounce have increased. Most traders should stay put and wait for higher probability chances, but for those who want to take a shot here, they should definitely stick with strength rather than buying weakness. Stocks that have withstood recent selling pressure are more likely to continue their strength than those that have been decimated over the past few weeks. (For more, see Top 7 Technical Analysis Tools.)

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

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