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Tickers in this Article: SNDK, CMG, AKAM, ECPG
The current market environment has been incredibly difficult to navigate for many traders. The past three weeks have been littered with large overnight gaps in both directions and several wide-range intraday reversals. There is also still the overhang of a market crash that remains unexplained. The going hasn't only been difficult for bulls either. Despite the trend being firmly lower, traders shorting this market have likely had their hands full dealing with many late-day reversals and memories of bulls buying every dip over the past several months.

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Many short-term traders have been raising cash and trading very cautiously as market health has been deteriorating. While this is likely the safest approach, some traders have been tempted with the recent drop in stocks and have begun to shop for bargains. While there may be some bargains out there, the majority of traders would be better served looking for stocks that have remained relatively healthy rather than searching out stocks that have been beaten down. Stocks that have shown some institutional support during market weakness may lead the way higher due to their good relative strength once the markets can find some footing.

One stock that has been a market leader over the past several months is Chipotle Mexican Grill, Inc. (NYSE:CMG). The restaurant stocks overall were great performers and CMG was among the strongest in the group. CMG has almost doubled in price over the past five months, and has been able to weather the recent weakness in the markets fairly well. Although CMG has pulled back some, overall the trend has changed to a sideways consolidation range, and CMG has managed to hold above its 50-day moving average the entire time. Also, notice how the 20, 50, and 200-day moving averages remain in a steady rise with the shorter values above the longer ones. This shows that while CMG's momentum may have slowed through the recent correction, it remains pointed in the right direction.



Another stock that has performed well in 2010 is SanDisk Corporation (Nasdaq:SNDK), which has also managed to hold up fairly well through the recent market weakness. The only significant drop over the past few weeks was on the "flash" crash day and SNDK recovered from that drop very quickly. Much like CMG, SNDK has transitioned into a sideways consolidation. Its 20, 50, and 200-day moving averages also remain aligned higher. The $45 level is the top of the range and should be the focus for breakout traders, while a key level on further weakness would be near $38.



Another stock that has remained near its highs despite an increase in volatility is Akamai Technologies, Inc. (Nasdaq:AKAM). AKAM surprisingly has been able to close just at or above its 20-day moving average for several months. This is no small feat with the sharpness of the recent decline in the general markets. The $35-36 level looks like a level of support moving forward. The key level on the upside is a little murkier, with the $40 level acting as resistance, but also the recent high near $42 coming into in play.



One stock that hasn't been in a steady uptrend for months like CMG, SNDK, and AKAM but remains looking healthy is Encore Capital Group, Inc. (Nasdaq:ECPG). Rather than rallying for most of 2010 like the others, ECPG had been building a long and healthy base. Unfortunately for ECPG, it broke out just as the markets started to show signs of weakness. This may have stunted the breakout, and ECPG has settled into a pattern of drifting back into the breakout area. It is currently sitting at key support near $20, and could find support here as buyers who missed the original breakout get a second opportunity. Looking above, the $22 level and then $24 would be the areas to watch for continued strength. (For more, see The Anatomy Of Trading Breakouts.)



The Bottom Line
While the markets remain in a very dangerous area, these stocks have managed to weather the recent storm relatively unscathed. If the markets can rebound from this level, these stocks would likely continue to perform strongly relative to their peers due to the strong institutional support shown through the recent market weakness. Ideally, even if the markets stalled, these stocks would hold up better than the supposed bargains provided by beaten down stocks. Traders should acknowledge that caution is still required, and despite these stocks showing strength, if the markets continue to slide lower it would likely spill over even to market leaders. Buying healthy stocks is not foolproof, but the idea is that traders can increase their odds by sticking with stocks that have shown support from institutions.

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

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.

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