NewMarket Corp was up almost 9% on Monday at $62.98 on volume 260% larger than the 50-day average as it closed at a new 52-week high for the first time since May. I started to screen NEU in July on the daily screens and added it to the MSW Index on July 29, 2006 at $48.84. I have pasted my analysis below from the past several weeks while on the MSW index. As you can see, my ideal entry was a move above $53 where the stock filled the previous gap-down from early May. The setup was perfect and the breakout was text-book on heavier volume.

As I just noted, the breakout came earlier this month on heavier volume as featured on the daily and weekly screens. I don’t want to scare holders out of the stock but please remember that EZPW was up over 26% in a few short weeks and has now fallen back to even on the MSW Index. I warned to take profits in that stock and warned to never let a profit dip below 20% once it has surpassed 25% (especially in 2006). Place your hard stops in NEU so you can realize the gain if it starts to form a handle or consolidation. I wanted a new handle to form before looking for the next entry area at the new pivot disclosed this past weekend at $60.43. The stock triggered this new pivot point but did so without the handle I was looking for so I did not add new shares. I am actually looking to take profits and protect myself from any pull-back.

I still like the chances for a possible $60-$100 run later in the year (after October) but I am wary about the action in September (a historically weak month). Looking at the institutional holdings, I can see that 113 money managers (13F), 136 mutual funds and three other holders currently own shares in the company. During the latest reporting period; 45 money markets, 32 new mutual funds and 2 banks placed new positions while only 13 institutional investors sold out. This all sounds great but the number of shares sold was basically even with the number of shares bought even though new positions eclipsed sold-out positions. The top holder during the latest reporting period was Dimensional Fund Advisors with 698,190 shares, a 13F institution (money market).

Earnings per share have grown from $1.92 in 2004 to $2.45 in 2005 with slowing projections this year and next.

Analysis from MSW Index:
7/29/06
NEU- 48.84, The stock is holding the support area noted on the watch list from two weeks ago. The buy would be a move above $53 which serves as the gap-down area. Just as stocks pull back to fill gap-ups, they breakout to fill previous gap-downs. This is the #4 rated stock on the IBD 100 Index. Rating: Buy above $53

8/05/06:
NEU – 53.07, The stock broke above the gap-down buy area of $53 on Thursday buy dropped on Friday to close at the level. If $53 is held early next week, this will be the ideal short term entry area (right now). The decline on Friday came on volume less than Thursday’s advance but it was slightly above the 50-day average. Rating: Buy above $53

8/7/06: (daily screen)
NEU – 57.50, the buy was a move above $53 as indicated on recent daily and weekly screens. The stock was up more than 8% today on volume 133% larger than the 50-d m.a. NewMarket was originally screened at $48.84 on July 29, 2006 for a current MSW gain of 18% (a total of 6 trading days)

8/12/06:
NEU – 56.40, The stock made the breakout from last week but did reverse near $60 on Wednesday. The strongest stock on the index at this time as it could become stronger with a move to new highs. I made a test buy last week but I didn’t buy many shares. I will sell with a move below or near $50, otherwise, I will hold. I will look to add shares on a move to new highs. Rating: Buy was above $53, more shares can be purchased on a move to new highs

8/19/06:
NEU – 57.94, The stock has completed the four month cup shaped pattern and should develop a handle over the next couple of weeks. I encourage a handle to form for several weeks before the next advance into the possible $60-$100 run. Rating: I am a buyer if a nice downward sloping handle forms (the pivot point is now $60.43)

Piranha

I’ve had several requests to do a special screen that locates interesting stocks under $10. As you know, I am not a big fan of stocks trading below $10 but I will perform a screen with this criteria about three or four times per year (to feed the craving).

Humans and their psychological minds love to dream about picking that one big winner from a low place and then ride it to riches. It does happen but not very often so don’t build your trading system from this type of thinking.

The last big winner on MSW from the sub $10 area was Forward Industries (FORD) in 2005 but this stock has since turned into a short in 2006. FORD etched the classic chart pattern that Stan Weinstein talked about in his excellent book Secrets For Profiting in Bull and Bear Markets (stage 1, stage 2, stage 3 and stage 4 bases). Actually, I think I will save this chart and add it to my technical analysis page on MSW as the “textbook” example of a four stage Stan Weinstein pattern.

Now, let’s have some fun and screen some stocks below $10 that present potential opportunities for those of you that can stomach buying these candidates. The stocks below do have decent relative strength ratings and earnings per share ratings.

Interesting Stocks under $10 – A screen for Fun:
*All prices from the close on 8/17/06

• NXG – 3.86, catching support near the 50-d m.a. as it trades in a range between $3 and $4 over the past 14 weeks.
• SLW – 9.45, the young stock is catching support at its new 200-d m.a. as it starts to build momentum to test all-time highs above $12. A move above $12 shows strength.
• JSDA - 7.80, risky as it tests its 200-d m.a. The sister stock of HANS may have downward pressure if Hansen Natural continues to stumble below its 200-d m.a. Stocks move in packs so be wary if HANS breaks down further
• Q - 8.59, nice strength with confirming volume over the past couple of weeks as the stock continues to tread higher. It has a long history of higher prices so it could be a longer term winner.
• STKL - 8.53, the stock advanced more than 100% earlier in the year and is now correcting but the interesting thing I notice on the chart is the decrease in volume while consolidating the former gains. Support at the 200-d m.a. may provide a nice opportunity but wait for the move (don’t enter early)
• GNA - 9.58, a trading range has developed between $8 and $11 but the most recent high in July could not surpass the prior high from April which is typically negative. A move above $11 would grab my attention.
• NSSC - 9.65, seems to be catching support at the 200-d m.a. with a trading range between $8 and $12. It must move above $12 to prove the potential advance.
• DTLK - 9.13, the stock is EXTENDED at current prices but it can become a buy opportunity if it falls back towards the 200-d m.a. and catches support. I wouldn’t consider a position until it at least pulls back to the 50-d m.a. just above $7 and fills the gap from last month.
• GIGM - 8.58, building a 14-week base with support near $7 and resistance at $11. A double top breakout will confirm on the point and figure chart above $10.50 and a new high above $11.
• CUP – 4.22, low priced risky stock that is looking to catch some support near $4 and the area above the 200-d m.a. With stocks gaining strength, commodity related stocks are declining but if Gold regained its footing, Peru Copper could continue the advance from its 2005 IPO. The original pivot point breakout in May was above $4.05 so look for the stock to hold this area.

I wanted to screen one last stock for pure fun: MSW
MSW – 10.79, Mission West Properties is above $10 but only slightly. I don’t know much about this company but it is gaining some strength near the 200-d m.a. as it consolidated from the prior run earlier in the year. The stock has not trended much over the past several years but I thought it would be fun to check the chart.

I have also included a chart of the NASDAQ which shows the breather that I indicated in yesterday’s blog entry. The index is pulling back today (expiration day) while some investors ell at this first Fibonacci retracement level. I also included a chart of the crude oil contracts as they are crashing down through the 50-d moving average. Major support is still owner near $69-$70. It will be interesting to see crude challenge this area; territory it hasn’t seen in two months.

Piranha

The NASDAQ has reached level one (38.2%) of the Fibonacci retracements with a 4.57% advance this week. The index may take a breather since we have made gains the past three days with a gap-up yesterday. However, if the strength in the market is true, the 50% retracement level should be the next target for the NASDAQ after a slight breather.

The 50% retracement level (2,195) is where I can see the index hitting stronger resistance since several factors come into play. The first is the actual Fibonacci retracement itself, the former breakdown from late May to early June and the longer term resistance and support line near 2,200 which dates back to the start of 2005.

If resistance is met, a short term short play may be in store for the NASDAQ; take a look at the QQQQ for a possible option play. You could also play the SPY as it is moving in stride with the NASDAQ this week.

Finally, the percentage of stocks above the 50-d m.a. on the S&P 500 have reached their highest levels in more than four months as indicated on the chart below. This market move is showing strength as several secondary indicators are confirming such as the stocks above their 50-d m.a., the NH-NL ratio and the action among individual stocks.

Keep in mind that September is the poorest performing month in recent history so a reversal is not out of the question. Protect your positions and don’t get emotional with this recent burst of strength. It can turn on a dime and you must be ready to act. Remember, the NASDAQ is still trading below its 200-day moving average (a negative in my book for a sustainable rally).

Piranha

Several things happened with the NASDAQ during the trading day on Tuesday:

The NASDAQ clearly broke above the down-trend line noted on the chart I have featured several times on this blog while also recovering the 50-d m.a. and the 2,100 resistance level. I spoke at length this past weekend on my weekly analysis over at MSW about these resistance levels and I made an in-depth argument as to why the NASDAQ can reach the retracement levels or re-visit lows set back near 1,900.

Volume was higher on Tuesday than Monday’s action but still light compared to the average since we are in the middle of August (summer volume is always weak).

The new highs topped new lows on Tuesday as most of the positive news could be attributed to the inflation report (the first positive day in more than a week).

Here is some of my commentary from the MSW weekly analysis from this past Sunday:
From 8/13/06:
“Now, if the NASDAQ were to breakout above all three of these levels (speaking about the down-trend line, the 50-d m.a. and the 2,100 resistance level) and individual stocks confirmed, it would be a major short term buy signal, one that I am watching very closely. On the downside; if the NASDAQ were to make a weekly close below the previous low near 2,020, we could be visiting areas between 1,900 and 2,000.

Where do I see this?

Take a look at the weekly of the NASDAQ and the next level of support near 1,900, set back in April 2005. September is the weakest month of trading for the market over the past decade so I would not be surprised to see this level revisited with a close below 2,000. But…

Using 1,900 as the low level of the most recent advance of 2,350 as the peak, we have retracement levels of 2,178, 2,125 and 2,071. With the NASDAQ closing at 2,057 this week and an intra-week low of 2,012 a few weeks back we might expect a rally as a temporary bottom may be developing since all three retracement levels have been met and then some. The Fibonacci retracements suggest that the market is over-sold and could have a short term bounce.

Using 2,378 at the high value and 2,012 as the low value on the daily chart, we can now see that a possible positive retracement can take place to any these three levels:
38.2%: 2,151
50%: 2,195
61.8%: 2,238

Based on recent NASDAQ action, I could see the index reaching the 50% retracement since the most recent peak was set at 2,190 at the end of June and early July (this peak materialized at the 50-d m.a. and the down-trend line found using the daily chart).

I hope I haven’t confused you yet! To recap, I have talked about a possible drop to 1,900 and a possible retracement rally between 2,151 and 2,238. I can’t tell you which one is more likely to happen but that is not my job. My job is to point out possible scenarios and give you an adequate chance to capitalize on the move and be prepared for the possible move. Now that you know what type of moves can happen, you can get yourself ready for possible trades that will allow you to make a profit in either direction (only if you are comfortable trading in both directions). This is how traders make money; they assess the situation and then look for possible trades that can benefit in either direction and they do all of this during their off hours (not during the trading day). Since the work will be done prior to the move, your setups and triggers will be set prior to the action so you will be able to make an unemotional decision in the “heat-of-the-action”.”

MSW members were privy to this market analysis prior to Tuesday’s move!
With yesterday’s move, we will now see if the first retracement level will be hit and then the possibility of a run to the 50% retracement level (see the attached chart).

Piranha

A few months back I asked if the New High – New Low Ratio (NH-NL ratio) was reliable. Take a look at the chart and the numbers and tell me what you think.

The chart in this blog entry was calculated using the simple math explained in an entry I wrote earlier in the year, which can be found here: Is the NH-NL ratio Reliable?

To calculate the percentage correctly, use this formula:
(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

The one thing I would like to stress is the huge drop from borderline “strength ratios” in April to negative weakness in May (just the time the market started to tell us all to get out and head for the sidelines and lock in gains).

Brett Steenbarger talks briefly about his findings while studying the new highs and new lows in the market. Take a moment to visit his “Market Context” for August 14, 2006 to see what he has to say.

I will conclude by saying that the NH-NL ratio is extremely reliable (lagging but reliable)!

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210 - This Past Week

New highs vs. new lows from last week (we were negative all week):
Monday showed a ratio of 83-147
Tuesday showed a ratio of 114-187
Wednesday showed a ratio of 126-235
Thursday showed a ratio of 62-281
Friday showed a ratio of 53-198

Piranha