What I look for in extremely negative markets like this are standouts -- stocks that have excellent relative strength and appear to be ready to make a big move should the market have a strong bull phase. All the technicals and indicators that I've been looking at over the past few weeks indicate that we are very close to -- if not already have begun -- an important year-end rally that could take us up substantially.
This week we'll review two stocks -- Cogent Systems (COGT) and Geo Group (GEO) -- and two ETFs -- Direxion Large Cap 3x (BGU) and iShares China 25 Index Fund ETF (FXI) -- poised to benefit from such an expected rally.
Cogent, which I mentioned last week at the Traders Expo, is involved with identification software, a company that's growing rapidly, with quarterly revenue growth, I believe, at more than 50%. A nice base over the past year has been developing. After a big drop down from the 38 level in early 2004, the stock came down at the beginning of this year to the 8 level, then rallied back up to 12 3/4, then worked its way down in the October lows, spiking down to the, 7.88 area, but reversing sharply that day and making an ultimate low. A little head and shoulders pattern has formed here, and a price-volume thrust took place this week. While the market was falling apart, this stock was making new highs for the last 5-6 days, and that's quite impressive, not to mention a thrust in technicals and volume. Even the retest held the breakout point on two occasions, as well as Friday morning when the stock got down to 10.65 and then reversed sharply and closed at 11.88, not far off the high and not far off the top of the trading range for the last year or so.
So look for the possibility of a break out over the 12 1/2-3/4 range. If that occurs, I'll be looking for a move that takes us up at least to the 15 area. My target is 17 over the course of the next few weeks, and then beyond that I'm looking for a move to 21-22 intermedate-term.
Longer-term I think the stock has a chance to get up to the 32 area, but that's way down the road, let's not get ahead of ourselves here.
Still, a very impressive technical pattern exists here. The beautiful base pattern can support a substantial move down the road should we get any kind of bull phase, and if the market doesn't follow through here to the upside and it pulls back down I'd be looking for a retracement that tests the 10 1/2 area, which would be a nice place to enter it.
To see my video chart analysis on COGT,
http://www.thetechtrader.com/members/charts/?id=954.
For Geo Group's chart analysis, http://www.thetechtrader.com/members/charts/?id=955.
BGU's analysis is available at http://www.thetechtrader.com/members/charts/?id=956 , and FXI is at http://www.thetechtrader.com/members/charts/?id=957.
