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Tickers in this Article: ROST, JOSB, BBBY, ARO
One way to screen for the strongest stocks is simply to find stocks trading near all-time highs. There is no sign of strength more certain than a stock trading at fresh new highs. Stocks trading at all-time highs have no resistance overhead, as any traders that are long are sitting on profits. In fact, the only traders in pain are shorts, or possibly traders who may have missed the opportunity. IN PICTURES: 7 Tools Of The Trade

Typically, stocks trading at all-time highs dwindle during market corrections, lending even more credence to the few stocks that maintain their strength through market weakness. Running a scan recently, it was interesting to note that several stocks close to all-time highs came from the retail sector. It often pays to find patterns in a group of stocks because this can be a clue that institutions are accumulating stocks in a particular sector.

Ross Stores (Nasdaq:ROST) is one such retail stock. Below is a monthly chart spanning the past 10 years. On longer term charts, ROST is in a very healthy looking uptrend. It cleared a multi-year base in 2008 that ultimately failed as the bear market took hold. However, ROST bottomed before the general markets did, and surged back to new all-time highs approximately a year later. While traders should definitely drill down to a daily chart for possible trading opportunities, the long-term chart is clearly showing a stock in a healthy uptrend. (For more, see Multiple Time Frames Can Multiply Returns.)

Source: StockCharts.com


Jos. A. Bank Clothiers (Nasdaq:JOSB) is another retail stock trading near all-time highs. JOSB had a spectacular run once it cleared a long base in 2002, rallying from $4 to almost $50 per share. It then settled into a multi-year consolidation with a final shakeout in late 2008. These long consolidations are important as they transfer shares from weaker to stronger hands. Generally speaking, the longer the consolidation, the more likely it is that the breakout is valid.

Source: StockCharts.com


At first glance, the Bed Bath & Beyond (Nasdaq:BBBY) chart looks different from JOSB and ROST, but there are some important similarities. BBBY is trading near all-time highs and is clearing a multi-year base. BBBY also experienced a sharp rally from 2001 into the base in 2003. The big difference is that BBBY suffered through a nasty pullback in 2008 that took it down to 2001 levels. However, BBBY also bottomed ahead of the general markets and managed to surge to all-time highs in 2010. BBBY remains perched near all-time highs and above prior resistance levels.

Source: StockCharts.com


Aeropostale (NYSE:ARO) is another retailer with a different looking chart that nonetheless shares similar qualities to the others. ARO is near all-time highs and is trading above recent resistance levels. ARO has loosely been trading in a channel, although a large base can also be identified with the lower range near $10 and upper range in the mid $20s. However, regardless of how the past price action is defined, the simple fact is ARO is trading at all-time highs and remains in a longer term uptrend.

Source: StockCharts.com


Bottom Line
In a typical market, stocks making new all-time or 52-week highs wouldn't be uncommon. However, keep in mind that the past few years have presented a fairly uncommon scenario. Many stocks were obliterated during the bear market, and while many have bounced sharply in the subsequent rally, the majority of stocks remain well off their all-time highs. Beyond that, the list is also smaller, taking into account the recent pullback in the markets. The stocks that remain near all-time highs are showing relative strength that should be respected. These are the stocks that have fared the best through weakness and may benefit if the markets head back higher. Many trend-following strategies are centered on stocks breaking to new highs, and with good reason. Strength often begets strength, and the popular catch phrase for trend followers is "the trend is your friend until the end".

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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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