The markets have been trying to put in a bottom to the correction that began in late July for several weeks now. The general indexes began grinding out lateral trading ranges soon after the initial plunge, and after dipping to new lows in October, they surged higher - easily clearing the tops of their established trading ranges. They have since been trading sideways again while holding above their October breakout levels.
What is interesting is that several stocks had been moving ahead of the markets and breaking out to new yearly highs. While these stocks have certainly garnered the majority of the attention, there are several stocks and sectors that are attempting to put in a bottom much like the indexes. These stocks may be worth stalking, as they are providing decent trading opportunities.
Joy Global Inc. (Nasdaq:JOYG) for instance, recently recovered from a sharp correction that took it down from over $100 per share to under $60. This is a 40% haircut in the span of a few months. However, JOYG has recently come to life, and has now set a higher high above the August high. It has also reclaimed its 200-day moving average on good volume. JOYG is currently trading in a flag with clear boundaries. Any weakness below $81 would be a likely cause for concern with any strength that carries it above $95 likely leading to a breakout.
Another stock attempting to put in a bottom is Terex Corporation (NYSE:TEX). Interesting enough, it falls in the same farm and construction machinery sector as JOYG. TEX has been in a clear downtrend for most of the year, and the longer-term weekly charts still look ugly. However, it has started to flatten out and recently set a higher high when it cleared the highs set in late August. Volume has also started to increase subtly, which may be hinting at accumulation. After clearing some trendline resistance, TEX has been trading in a tight flag. Any strength that carries above the flag should lead to higher prices. (For more, see A Rock Solid Play In Construction Aggregates.)
AGCO Corporation (NYSE:AGCO) is another stock in the farm and construction machinery sector that is trying to put in a bottom. Much like the others, AGCO has cleared a downtrend line marking the top of prior rally attempts, and also set a higher high. It is currently trading in a tight range as it tests its 200-day moving average. A close above $47.50 would certainly be worth monitoring.
Manitowoc Company, Inc. (NYSE:MTW) also falls into the same sector and same behavior pattern. MTW had also been trending lower for most of the year before changing character in October. It has since been showing relative strength, and could be close to a follow through move. If MTW can clear the flag that is currently forming near $12, it could lead to a strong rally attempt.
The Bottom Line
While much of the focus has recently been on uncovering market leaders that are already testing higher levels, there are plenty of stocks that are still working on bottoming out. Maybe the markets aren't ready to bottom yet, and if this is the case then most of these setups will fail. However, if the markets do continue to bottom, then these stocks should follow a similar pattern. (For more, see Analyzing Chart Patterns.)
Charts courtesy of stockcharts.com
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.