Despite a mediocre day in the stock market yesterday, as measured by the indexes, several individual stocks had banner days. Traders should always keep an eye on what individual stocks are doing, as the indexes can often be skewed by a few large components. Generally speaking, individual stocks have been acting much better than they were just a few months ago. One common indicator that measures the percentage of stocks trading below their 40-day moving averages has risen to over 70% from under 10% since August. Beyond just spiking higher, the indicator has remained above 70% since mid October even as the general markets trade sideways. With the majority of stocks trading above this intermediate benchmark, it is no surprise that more long swing-trading setups are starting to appear.
Select Comfort Corporation (Nasdaq:SCSS) for instance has been developing a nice flag pattern after clearing a base in October. It cleared the base on huge volume and has held above the $19 level since then. It may be starting to emerge from its flag here, and a breakout may lead to a test of all-time highs just above $28.
Tractor Supply Company (Nasdaq:TSCO) is another stock with a much improved chart. TSCO had fallen apart in August as the markets endured selling pressure. TSCO rebounded from the sudden drop fairly quickly, but it took several more weeks for the stock to settle down and set a higher low. It cleared trendline resistance in October as it set a higher high and has since settled into a tight trading range near its July highs. It is starting to move above this tight range which would lead to new all-time highs.
Another stock trading near all-time highs is Polaris Industries Inc. (NYSE:PII). PII cleared a base in October as it surged above the $60 level. It has been flagging above this level since then and could be close to a follow through move. Any strength that carries above $65 could lead to a strong breakout.
A recent IPO that has also been acting well is Fusion-io, Inc. (NYSE:FIO). FIO is pretty volatile, so traders need to take that into account by reducing their typical position size. FIO had entered a long, drawn out pullback after its IPO, as it drifted lower in a well-defined channel. It cleared this channel in October and traded sideways for a few days. There were a few clues revealing strength in October as it attempted to rally. First, FIO finally started setting a higher high. Second, FIO refused to give up much ground as it consolidated its gains. Sure enough, FIO continued to move higher and despite some recent volatility, FIO sits at new highs. It's possible that FIO is headed higher, although traders are likely better served waiting for a more reasonable entry.
The Bottom Line
One clear indication of how individual stocks have been improving is by watching where they stand relative to primary moving averages. Months ago, it was hard to find any stocks trading above their 50-day moving averages, let alone stocks trading at all time highs. We are seeing more and more stocks challenging all-time highs (even as the indexes remain neutral) as they attempt to bottom out. As long as individual stocks continue to improve, it is likely that the markets will soon follow. (For more, see Analyzing Chart Patterns: Introduction.)
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.