By Michael Cintolo, Vice President of Investments, Editor of Cabot Market Letter and Cabot Top Ten Weekly?
From Cabot Wealth Advisory 9/2/10 Sign up for the free Cabot Wealth Advisory e-newsletter
As I’ve been telling subscribers the past few weeks, there’s a split in the market these days—the major indexes are sagging and are near their 2010 lows, yet many individual stocks are still in grinding uptrends during the past few months. In fact, this past weekend I made it a point to closely examine the weekly charts of the major indexes and many stocks (each chart has three to four years of history).
What I saw surprised me: Many stocks are building long, multi-month launching pads, despite the weak indexes. In fact, more than a few formed sound launching pads, broke out in July, and are now forming other bases on top of the prior consolidations—that’s known as a “base on top of a base” and is usually a bullish pattern.
I’ve also seen a few choice stocks actually pushing consistently higher in recent months in a volatile way. Of course, it will all depend on the market’s next big move, but this pattern of gradually higher highs during the four-and-a-half-month market pullback tells me these stocks want to move higher.
Two that have similar patterns are Netflix (NFLX) and Akamai Technologies (AKAM), two big-cap stocks that I feel have the potential to help lead any coming market advance. I won’t delve into the nitty-gritty of the fundamentals. Suffice it to say that NFLX is positioned as the leader in on-demand video, while AKAM has the largest content-delivery network in the world, and is poised to benefit as video and data traffic continue to soar … partly thanks to on-demand video offerings from the likes of Netflix!
What intrigues me is that both of these leaders have very similar chart patterns—they each corrected sharply at the end of June, and then bounced for a couple of weeks in July … but failed to reach new-high ground. And then each fell sharply again—to lower lows—after disappointing reactions to their earnings reports near the end of July.
That lower low caused a shakeout and formed what is known as a double bottom pattern. But for the pattern to be complete, the stocks would have to race to new highs soon after that second low. And they did! Both moved up in a big way as institutions piled in.
Now NFLX and AKAM have pulled back toward the top of their prior double bottom patterns, hovering above their respective 50-day moving averages. If you’re aggressive, I think you could buy a little (maybe a third or half of your normal-sized position) of one or both here … as long as you keep a tight, 5% to 7% protective loss limit on each position.
If the market can find a low around here and begin a sustainable advance—and I think there’s a decent chance of that—then both NFLX and AKAM have a shot at big gains.
Click here to learn more about Netflix, Akamai and other leading stocks featured in Cabot Top Ten Weekly.
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Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report ?
From Cabot Wealth Advisory 6/3/10 Sign up for free Cabot Wealth Advisory e-newsletter
The action of leading stocks has been very unusual during the market correction since early May, as many simply refused to participate in the correction!
These stocks were held tight by institutional investors still expecting a brighter future at these firms. And whenever individual investors scared by the market’s plunge sold and headed for the safety of cash, these institutional investors bought more, supporting these stocks and keeping the positive chart patterns intact.
So now these stocks are in stronger hands than previously, and they’re primed to resume their previous advances as the pressure comes off the broad market.
One of my favorites is a company called Akamai (AKAM), which recently earned a spot in Cabot Top Ten Report.
Here’s what editor Mike Cintolo had to say.
“Akamai delivers roughly 20% of all Internet traffic, acting as the main intermediary between you and content providers like Adobe, Clear Channel, EMC, Fox Interactive, MTV Networks, MySpace, Nasdaq, NBC, Sun Microsystems, Starz Entertainment and Verizon Wireless. Using a global platform of thousands of servers, it delivers content and applications on demand, always working to stay ahead of the world’s appetites, which continue to grow rapidly, thanks in part to the explosion of high-definition (HD) video and music from companies like Netflix and iTunes. Also driving demand are HD sports (the Masters golf tournament generated traffic exceeding 3.4 terabits per second over Akamai’s network), cloud computing, and the boom in smart phones. After 10 years in business, Akamai is poised to top $1 billion in revenues this year. Profit margins are very good, and the future is bright.”
When that recommendation appeared on May 10, AKAM was trading at 38. In the weeks that followed, it continued to build a base under 40. But yesterday it broke out above 40, on good volume. This is a classic sign of a leader; even though the general market is only a few days off its lows, AKAM is hitting new price highs!
Just beware; if you buy AKAM, you should have a sell discipline in place, and the best way to get that is to become a subscriber to Cabot Top Ten Report, which provides regular updates on all past recommendations until they are sold. Click here for more information: Cabot Top Ten Report
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
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