Watching The 'Salmon' Stocks

by Olivier on May 26, 2010

Pretty pathetic rally attempt we witnessed today. Selling pressure remains a big concern and overhead resistance is the number one issue the market has to contend with right now. Think huge overhead resistance. Everybody is now trying to figure out the strength of the bounce and how resilient stocks and specific sectors are. One way to determine a stock’s resilience is to closely monitor its ability to display salmon like characteristics. Salmons swim upstream. Strong stocks and emerging new leaders are the ones holding up best during bad times. Put another way, when the market puts a lot of pressure onto stocks the best ones are able to stem the tide and sometimes are literally able to ‘swim upstream’.

When the tide actually turns, this also applies for short term changes in market direction, those are the ones that usually display the best performance as they bust out to the upside. They usually do so because they have build less overhead resistance than their peers.

A few stocks that I monitored closely today and that partly fit the salmon type stock criteria are:

  • APKT – Acme Packet – The stock is trading at all time highs
  • ARUN – Aruba Networks – One of the stronger tech stocks out there.
  • CSTR – Coinstar – This one is truely bucking the trend.
  • PPO – Polypore – The stock was one of the few bucking the downtrend a week back.
  • CYD – China Yuchai – One of the stocks I use to gauge Chinese market strength.

None of the above mentioned stocks managed to impress today. APKT shot out of the gate at the opening bell but closed down for the day and one could make a case for today’s candle to be a reversal. The long tail could indeed be a topping tail. The rest of the pack was equally disappointing. To make a long story short: Sellers are still clearly in control. The markets simply need more time.

Remember the name of the game: Protect your capital. Make sure to protect your mental capital as well. Keep in mind damage to mental capital is much more difficult to repair.

The most important rule of trading is to play good defense, not great offense. – Paul Tudor Jones

My public list with all my charts can be viewed here:

Buenas noches!

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