Ctrip.com (CTRP)

There are two dominant liquid Chinese leadership stocks in the current rally. One is BIDU. This other is online travel website Ctrip (CTRP).

In continuing market rally we feel CTRP is only higher. YOY sales and earnings have accelerated for three quarters in a row, with strong projections for at least the next two quarters.

CTRP is a hard stock to buy and hold. It is whippy and has a tendency of correcting violently. But the uptrend is clear and so is the correct way to enter this stock: when no one appears to want it.

Tuesday, in the midst of a robust holiday rally, CTRP broke down on some volume and bounced off its 10 MA weekly. This is often an ideal place to initiate a position. The stock finished off its lows of the session and yesterday took out the highs, indicating price is likely to recover and attempt new highs.

We are entering a long at the market this morning, around $73.50. Our stop will be Wednesday’s low of $70.55. Our goal, as always, is entry for a resumed uptrend in the stock.

Randgold Resources Ltd (GOLD)

We predicted an uncomfortable correction in gold and recommended taking some profits off the table in our GLD ETF trade several weeks ago. We thought the quick move higher in gold would lead to a correction that was sufficiently disorderly that traders would question whether gold had topped or was simply undergoing a correction. When sentiment shifts like that it can make it hard to hold a winning position.


That is where we are now with the price of gold. It has blown through two reversal setups and that often leads to even lower prices.


But as our readers know, we believe the best money is to be made by expecting the unexpected. What if gold, which seems poised for lower prices, recovers here? Miners scored significant gains during gold's rise. Is there a miner that is acting constructively on this pullback and appears to be a good entry on a gold reversal?


The answer is yes. And the miner is Randgold (GOLD). Alone among liquid gold miners this stock has held its 50 MA. We like that it broke below a recent consolidation, appearing to threaten a more significant breakdown, but didn't follow through. That "failure of failure" can often be a good entry point.

The price of gold seems to be stabilizing this morning. Whether this represents a permanent turn or not we cannot yet know. But we'll take long entry in GOLD on a move over $80.75 with a stop under $78.

Amazon.com (AMZN)

This Internet retailing behemoth has been one of the strongest performers among institutional quality stocks over the last several months. It is in a torrid uptrend that has cooled recently as the stock has drifted back to its 10 MA on rather light volume over the last few weeks.

We have discussed this stock on our sister blog this morning as an important bellwether at an interesting buy point. We invite you to review our comments and consider a position as the stock lifts off of what is ordinarily a key area of support for an uptrending stock.

Bucyrus Int'l (BUCY)

This morning the company, in which we had previously taken a position, has acquired Terex'es excavation business, which they claim will be immediately accretive to earnings. This is an all cash deal, making it all the more bullish.

BUCY has formed a five week Square Box second stage base. The last three weeks mark tight closes. We don't care for the topping tails on the weekly chart, but today's news is a company altering event. The stock is breaking out to new highs on enormous volume and we believe it is a buy, or an "add to" at the market.

Apple (AAPL)

Readers probably tire of us saying this, but AAPL has been the most important stock in the current market rally. It has the most institutional sponsorship among winning stocks this year.

For only the second time this year it has paused to form a base. History teaches that stocks rising out of constructive bases provide the lowest risk entry points for gains.

AAPL has formed a seven week Square Box pattern. According to O'Neil these patterns only last seven weeks so we should expect a move one way or the other imminently. Two weeks ago price broke below its 50 MA but last week price made a power move back over the line. It closed the week just below as it retraced some of its gains on light volume.

Should the market assert itself and launch another leg higher we believe AAPL will be in the vanguard of stocks scoring fresh gains. We'd be buyers of any volume move over the brief downtrend line in the base, which could indicate a fresh break out is underway.

Dow Chemical (DOW)

Dow Chemical (DOW) had a near death experience in its takeover of Rohm and Haas last year. They offered a rich premium and committed to significant debt as the economy was imploding. They desperately tried to extricate themselves from the deal but were legally bound to it.

Turns out that was a good thing.

Dow's stock price has about quintupled off the market lows. And recently they announced the consolidation of the Rohm buy is going so well they expect FY '12 EPS of $4-4.50 per share, well above analyst views of $2.50. The increased earnings power means that DOW is trading at little more than 6x's 2 year forward estimates.

The stock gapped to new 52 week highs on the news but has since eased back to the 50 MA where it has found support.

We like it here as it gaps modestly higher this morning. We'll use $26 as our stop. Our objective is to treat this as a core holding in a recovering economy.

Bucyrus Int'l (BUCY)

The pick and shovel companies that assist miners in their operations have had an excellent run, none more so than Bucyrus (BUCY). With solid growth the company recently gained better than 60% out of a cup with handle base and has now paused to form what O'Neil calls a Square Box base.

We have every reason to expect mining to remain strong and thus seek entry into this stock. We are intrigued by the way price recently undercut the lows in the base and then bounced back. Today price is starting to push back higher and we are buying at the market with a stop under $50. Our objective is to participate in a break out to new highs.

Competitor Joy Global (JOYG) is set to release earnings next week. Although BUCY will not report until February this event should be a near term catalyst for the stock.

Barrick Gold Corp (ABX)

We expected a greater correction in the price of gold, and it may yet come, but when it is over clearly well selected mining plays have shown the potential to outperform the price of the underlying ore itself. While Barrick has gained as much as 33% since gold began its move it lags the best performers which have gained better than 50%. Still, we expect far better things from Barrick Gold (ABX) going forward and favor it now as our miner of choice.

The reason is that Barrick has traditionally heavily hedged their production. This shielded them from the volatility in gold's price, but with this asset in a clear uptrend for the better part of a decade the company has robbed itself of the benefit of gold's rise.

No longer.

Recently the company unwound the last of its hedges. Given that this is one of the largest and most liquid gold miners on the market we believe the stock will become a vehicle of choice for those seeking exposure to the mining sector.

Barrick's stock price has pulled back with the price of gold, and is trying to turn at its 50 MA. While material stocks will react more to the price of their underlying asset than to technical signals, should the price of gold turn soon we feel entry here will be compelling. We will enter a long position over yesterday's high with a stop under yesterday's low.

Is it Time to Buy Back Gold?

We’re surprised. We expected an uncomfortable correction in gold. While it has quickly fallen as much as $110 a share that’s only a correction of about 9%.

There has been some discomfort. We like how it pulled back to its 20 MA, tried to reverse, and failed. The 10 and 20 MA’s are normally the first support areas for price in an aggressive uptrend. Gold had ridden its 10 MA since breaking out of its second minor correction in October. Twice previously it had found support at its 20 MA and traders reflexively sought to buy it on this most recent visit. The failure of the setup, which we expected, confirmed our suspicions that bullishness was so rampant the correction had further to go. We expected a break of the 50 MA before a reversal, which would be sufficient to scare out a lot of weak and late holders.

But frankly the news flow worries us. Normally when a correction occurs bearish arguments hold sway and cast doubt in investors’ minds. It causes many to question their thesis for being long in the first place.

But over the last few days the news has been nothing but bullish for gold. Shall we count the ways?

President Obama has announced yet another stimulus plan, even in spite of an economy that appears to be turning around. He is clearly panicked about losing his majorities in Congress in elections next year and believes massive spending is the only way to turn around employment sufficiently to spare his party from losses.

The Japanese have announced yet another in a lengthy list of stimulus packages dating back to the early ‘90’s. President Obama should pay heed. These stimulus packages have done nothing but make Japan the largest debtor nation on earth and undermined its currency. Japan has been in and out of recession for nearing twenty years.

Peripheral European economies are on debt watch, including Greece and Spain.

All of these items simply serve to underscore to investors the lack of credibility of the world’s major fiat currencies. Where do investors seeking refuge from the storm turn? To gold, of course.

Technically gold is due for a correction of 20% or greater over a period of a couple months. But the news flow argues that investors should be on guard to reenter this trade sooner. Today price put in a doji candle, the second reversal setup in three days. The last one failed. Given the news flow this one might not.

Potash Corp Saskatchewan (POT)

The move by Potash (POT) lately serves as a prime example of what we are looking for. It fits two of our profiles of what is working in the current environment, being both a commodity stock and a big cap with international exposure. And the price and volume action, not to mention the chart, are superb.

Potash producers in particular have been graced with considerable good news of late regarding demand for their product. And today the entire fertilizer sector got a boost on news that the Chinese (yep, them again) are in negotiations for a major purchase.

Price formed a cup with handle base. Volume mounted as the right side of the base was forged, exactly the kind of action you want to see in an imminent break out. The stock first broke out of a handle that was a bit low in the base. These buy points are usually best avoided although in this case the gambit has worked. A second, more proper, handle was established over the last few days, wedging lower on volume that evaporated. With volume reaccelerating the stock started breaking out yesterday and today broke completely out of the base scoring 52 week highs. It is extended here but looks promising for further gains in a continuing bull market.

We’d recommend purchase on a pullback to the $119 - $120 area. Of note POT has no significant resistance until $140 - $150 and those prices are from September 2008. History suggests that after a year overhead supply becomes less of a factor, auguring well for this play.