Lowes (LOW)

Market Cap: 70.1 B
Sector: Services, Home Improvement Stores
EPS Growth Next Year: 17%
Gross Margin: 34.8%
Return on Equity: 30%

Lowe's is the "other" Home Depot. The stocks trade similarly and they have almost identical fundamental metrics. If you like Home Depot from an investment standpoint, you will like Lowe's also. Lowe's and Home Depot recently reported earnings and both posted strong results. Lowe's reported an increase in Quarterly earnings over last Quarter, project earnings growth of 17% for next year and the following 5 years.

 In terms of price action LOW is now trading at new all-time highs and leading HD. Lowe's is offering a strong risk/reward at the current moment.

LOW Weekly chart

Lowe's has been trading mostly sideways since the beginning of 2015. The weekly chart has formed a bullish Cup/Handle base and this week following earnings, broke out of the trading range on strong volume. The weekly chart also shows an engulfing bar which means the stock's range completely engulfed all of last week's trading. This tends to happen at the beginning of a new trend.

We know this stock can rally, in 2014 the price appreciated from $45 per share up to $75 in nearly a straight line. It has since held closely to those highs, consolidating the large gains, and now appears ready to resume a new uptrend.

There is a saying in the markets, "history doesn't repeat, but it often rhymes". I think this applies here nicely. In mid 2013 until late 2014 LOW traded sideways after a strong rally. This consolidation lasted about 9-months. We then saw another strong move that was ignited by a surge in volume and a breakout from the prior range. This rally lasted for the next 6-months and gained almost 100%. The current setup is also a nearly 9-month consolidation. Price and volume are suggesting another similar rally could be imminent.

My indicators are aligned very nicely here and are confirming the strength in price. Relative Strength vs the SP500 remains in a clear uptrend and is making a new high. The Weekly MACD has resumed higher after pulling back to the zero line, and volume is expanding on the breakout showing institutional buying.

All signs point to a trend resumption here and using the swing low at $74.50 for our stop presents a very favorable risk/reward opportunity. If the potential rally is anything like the last two we can expect a move near the $130-150 area. That basically amounts to a $5 risk for a $50+ reward. I'll take 10-1 risk/reward every time its offered to me.

US Dollar (UUP)

Long the US Dollar is the next "don't fight the Fed" trade. With the strong Payrolls report for October and Janet Yellen's comments this past week, the Fed Fund Futures are now predicting a 70% chance of an interest rate increase in December.

The market responded on Friday and appears to have begun repricing assets to account for a rate hike in the near future. As we saw at the end of last week Lg-Cap stocks were flat, Small Caps led, Bonds got hit, along with Gold and interest rate sensitive groups. The two most positive reactions we saw were in Financials and the US Dollar. This is textbook "higher rates" rotation.

Financials and the Dollar are two groups that stand to benefit the most from a rate increase (tightening Fed). I prefer the Dollar trade currently because of its lower correlation to the SP500. Financials will still be beholden to the weight of the stock market while the Dollar will not. I also believe that while the market is in suspense for this change in policy, Lg-Cap stocks will be more volatile. Not to mention the strong rally stocks have recently had on the back of a more dovish Fed theory. Now with uncertainty being placed back into the market, things will likely be more choppy and range-bound until December.

US Dollar Weekly chart (UUP)

After consolidating its strong rally from 2014, UUP has traded in a tightening formation for the better part of 2015. It broke out of this pattern Friday triggering a continuation of the previous trend. 

For risk management purposes we can use the support lows at 24.40 on a weekly closing basis. Any move back below that would suggest this analysis is wrong and a more neutral Dollar position would be needed.

Our indicators all align to suggest a strong risk/reward setup. Volume surged the week of August 24th but has since tapered off. This week's increase in volume is a confirmation that strong buyers are behind this new breakout.

The MACD indicator has reset at the zero line and is now crossing bullishly back through its signal line. Relative Strength is also in an uptrend vs the SP500 and has been this way since the middle of 2014. Prior to this most recent 18-month outperformance, the Dollar has been in a Relative downtrend vs stocks since 2009. It appears a major shift is taking place.

Paycom Software (PAYC)

Market Cap: 2.7 B
Sector: Technology Application Software
Sales Growth Q/Q: 47.1%
EPS Growth This Year: 89.50%
EPS Growth Next Year: 30.90%
Gross Margin: 83.60%
Return on Equity: 22%


Paycom is growing fast! They recently announced third quarter results with revenues increasing 50% Quarter over Quarter. Beating earnings estimates for the 6th straight quarter and raising full year revenue guidance, this company is showing strong organic growth in a market struggling for sales.

The stock was rewarded today as shares soared 17% on six times the average trading volume. When this kind of demand comes into a stock after a multi-month consolidation, the subsequent gains can be impressive.

PAYC Daily

Today's action has the look of a "breakaway gap". The stock has been emerging from a sideways range and after pulling back to the 50 DMA, today's response to earnings propelled the stock to new all-time highs.

There appears to be tremendous strength behind this breakout as trading volume was at a new all-time high. The MACD indicator confirms a strengthening trend and Relative Strength vs the SP500 also set a new record high.

PAYC Weekly

The longer term weekly chart is setup similarly.

The market is suggesting Paycom is ready to begin a new leg higher. This is an emerging trend we can be a part of while managing our risk at the same time. The trade may need some room to breathe while it develops its new uptrend, so our stops should be far enough away for the stock to safely pullback, but also close enough that no real damage will be done to our capital should the market not cooperate. Due to the recent consolidation, the pivot low at $36 can be our initial stop.

With the way Paycom is growing, in an environment that's desperate for sales, this stock could double within the next year. Make no mistake, PAYC is not cheap. But this market isn't looking for cheap, this market has been rewarding growth, especially growth in revenues. With performance anxiety likely to increase among fund managers, stocks like Paycom will be easy targets for Alpha into year-end.

Entering Tyson Foods (TSN)

Market Cap: 17.34B
Industry: Consumer Goods 

Forward PE: 13.15

EPS Past 5-years: 29%

EPS Next Year: 10.43%

EPS Q/Q: 13.70%
Price to Sales: .42
ROE: 11.90%

A look at the financial highlights above show a steady growing and relatively inexpensive stock. The average PE for its peer group is near 29. This puts Tyson as one of the cheaper and faster growing companies in its industry. 

The stock has behaved very well recently and this week closed at new all-time highs. These new highs have been achieved with the SP500 trading more than 5% below its highs. I like to see this type of relative strength in stocks breaking out from large consolidation bases. 

TSN has just cleared more than 18-months of resistance.

(Weekly view)

 Here is a look at the weekly indicators as well. A few items to note is that volume increased on this week's breakout, which is an indication of accumulation at these levels. The MACD line has seen a steady pullback to the Zero line. While the stock consolidated its large gains from 2013, momentum has held its "bull range" and has now put in a higher low. Another indication I really like (and is discussed at length by William O'Neil in his books) is how the Relative Strength line has been in an uptrend since early summer while the stock was emerging from its base formation.

While these kind of momentum moves haven't been very successful in our current market, we simply never know when a move will be real, leading to large gains. For the past year breakouts like this have been sold, providing little for sustained gains. 

It is because of this reason that we always use a stop loss to prevent a false signal from turning into a portfolio ruining trade. Small losses can be recovered from, big losses cannot. Our goal is to look for patterns that suggest the potential for very large upside moves. We then setup a structured plan such that any failure of the signal will only result in a minimal loss of principle capital. 

Tyson Foods is offering that kind of opportunity currently. 

This stock can have fairly noisy swings within its trading range. It's not uncommon to see it swing 5-10% in a week or less. It's also had quite a move in the last several trading days. Some consolidation would make sense in the near term. Based on the possibility of short-term continued volatility, our initial stops will be placed below the recent consolidation and rising 20 and 50 WMA's. We will be using the swing low at 41.38. A violation of that level would be the lowest weekly close in 18 weeks. A break of that support would suggest a failed breakout and the stock would need more consolidation going forward. 

 Depending on your preferred entry method of choice, this may setup more attractively for you in the near future. For me and my timeframe I'm happy to enter here knowing we will be taking a slightly smaller initial position based on the recent move, but will likely have a chance to add to this purchase should it move in our favor. 

Successful investing isn't about "always being right". It's about identifying strong risk/reward setups and letting them play out. No one knows where a stock will go regardless of how convincing they sound. What we need to do is have a plan in place that minimizes risk, maximizes gain and limits emotional reactions.

Amgen (AMGN)

Market Cap: 130.5B
Average True Range: 4.08
Beta: .54
Forward P/E: 16.23
Sector: Biotech
EPS Growth Next Year: 10%

Amgen just announced their recent quarterly earnings and beat on EPS, Revs, and raised guidance. That's a trifecta report and the stock is setup for further upside.

When the fundamentals back up a strong stock chart, the moves can be very powerful and high probability. I believe we are seeing this currently.

With a close above 172.75 today Amgen will breakout to new Daily/Weekly/Monthly highs. When multiple timeframes come together it only adds to the strength and reliability of the trade.    

Weekly
9-month base along a rising uptrend

Price has consolidated the recent 3-year bull market and is now attempting to resume above those highs. This breakout is also occurring on higher than average volume showing a strong accumulation of shares.

Indicators (weekly)

The MACD and Relative Strength indicators show a very strong and high probability uptrend resumption taking place. Volume has also increased well above average on this week's breakout.


Monthly

The long-term trend in AMGN is impressive, many may even say unsustainable. That may be so. But this is why we manage risk. As long as we make sure to exit the position when risk becomes elevated and keep our losses small, we will maintain our confidence and investment capital for the next winning opportunity.

Sticking with winning trades is an easier way to make money than trying to time lows and highs in the market. Think of it as swimming with the current rather than against it. The monthly trend here is 
pointing higher and the stock is giving us an opportunity to participate where our risk is well defined.

For risk management purposes we will be using the weekly timeframe to manage this position. The closing low of last week will act as our stop ($158.59). If that level were to fail the stock would have broken below the 50 DMA and 20 WMA, as well as failing to sustain the upward momentum. Should that be the case we will step aside and wait for a better opportunity.

Successful investing is about waiting for your pitch, Amgen has all the makings of a high probability and powerful uptrend resumption right now. I will take that chance every time.

Goodyear Tires (GT)

Market Cap: 7.8B
Average True Range: .72
Beta: 2.26
Forward P/E: 8.11
Sector: Consumer Goods- Rubber and Plastic
EPS Growth This Year: 287%
EPS Q/Q: 456.5%
ROE: 98.4%
P/S: .44

Goodyear Tires looks ready to move higher after forming a substantial base pattern at multi-year highs. The stock is cheap. It has pulled back roughly 15% off its recent 52-week high and is retesting the upper range of its base.

EPS is growing rapidly and the Forward P/E is just above 8. Price to Sales is .44 and PEG is .27 suggesting much more room to grow fundamentally.

While the stock has shown some recent weakness I believe that to be short lived and should be ready to resume higher from here.

Looking at the 8-year weekly chart, we can see that the stock is near its 2007 high and has cleared the key 61.8 Fibonacci retracement level, which often acts as strong resistance. Typically when this level is broken to the upside the prior highs will act as a magnet, pulling the price toward it.

Zooming in on the same weekly chart, price is retesting the upper range of the prior base. As polarity teaches us, prior resistance should become new support. The $28 level acted as a strong ceiling for prices for more than a year. The stock finally broke through on strong trading volume in early spring and is now going through a typical "throwback" type pullback.

I also like that the rising 20 WMA has caught up to price and is meeting it right at this critical retest area. When looking for favorable risk/reward setups I like to see a confluence of support at the same level.

It should be fairly easy for GT to at least retest its prior swing high near $37. This presents initial upside of more than 25% from current prices. With stops less than 6% away from the entry point it sets up to be a great bet to make.

The stock is cheap, growing earnings rapidly and a breakout is in motion. All things I look for. We will place our initial stop just below the breakout level and at the prior pivot low at 27.23 on a weekly closing basis.

Time Warner (TWX)

Market Cap: 72.8B
Average True Range: 1.16
Beta: 1.19
Forward P/E: 15.32
Sector: Entertainment Diversified
EPS Growth This Year: 24.30%
EPS Next Year: 23.71%
EPS Growth Past 5-year: 20.20%

Time Warner has been displaying very positive price performance recently and I believe TWX is on the verge of a big breakout move. We all know their content is premium quality and with HBO spinning off into an individual subscription service presents an interesting opportunity for growth in the near future.

The company's growth metrics won't blow your skirt up, but they have been consistently steady and seem poised for greater upside in the near-term. Time Warner has grown EPS by 20% for the past 5 years and is projected to continue into 2016. As we have seen recently, the opportunity exists for TWX to be a strong buy-out candidate as well. At current valuations it makes an attractive target for companies needing a boost to the bottom line.

The stock has been trading in mostly a sideways range since late 2013. Apart from the "Fox bid" surge in July of last year, it has mostly been working off the tremendous rally from the '09 lows. Recently we have seen the stock trade against the high end of the buy-out offer level, and just this week is making new 13-year highs.

I believe the recent trading behavior, acquisition support, and HBO subscription service make TWX a very good bet for out-performance for at least the next year. Simple range calculations suggest initial price targets in the $108 area, but on a percentage basis much more upside could exist.

TWX Monthly

 Here is a look at the monthly bars going back to the 2000 crash. The stock then went on to create a lower low during the '09 financial crisis, but has since broken through the swing high near $60. This is classic "Double Bottom" behavior and the breakout has seen substantial follow-through away from the prior range.

 TWX Weekly

Zooming in on the last 2+ years, the stock has continued to increase in value yet has been consolidating tightly for the better part of the last year. Each time that price has approached the highs at $87 the stock has fallen back. Yet on each successive test buyers have come in sooner and sooner creating an Ascending Triangle formation.

A setup like this has a higher than average probability of breaking out to the upside and creating a strong move away from the coiling formation.

 TWX Daily

Looking at the daily bars, the stock broke out to new 13-year highs yesterday. This coiling price action can create explosive moves in the direction of the breakout and I think this instance is no different. The trading ranges within the triangle have gotten tighter and tighter as time has gone on.

Periods of low volatility tend to be followed by volatility expansions. I believe TWX is on the verge of such a move right now. For risk purposes we will be using the daily swing low at $82.20 as our stop and will size our holding according to that risk. The Risk/Reward sits favorably here as we will be risking $6 with initial targets of $20 higher. I believe the 108 target is modest and that this stock could continue higher from there. But this still sits at a greater than 3-1 reward to risk using these initial projections.

HD Supply Holdings (HDS)

Market Cap: 6.70B
Average True Range: .69
Forward P/E: 13.30
Sector: Industrial Equipment Wholesale
Sales Growth Q/Q: 6.1%
EPS Growth This Year: 98.50%
Price to Sales: .74
EPS Next Year: 30.26%


HDS Daily

HDS has seen two high volume breakouts out of sideways trading ranges recently. One in late March and one recently coming last Tuesday after beating earnings estimates. Growth is strong here as the company has been growing EPS over the last year and it is expected to continue next year as well.

HDS Weekly

The weekly view shows just how resilient the stock has been since breaking out in March. While the market has been quite volatile, HDS has worked its way steadily higher in an orderly manner. Stops will be placed just below the recent range support at 32.22. This is also the weekly closing low from 5/15. A break of that low would signal more consolidation is needed an we would likely want to step aside.

Relative Strength vs SP500

Here is where the stock really impresses me. Relative Strength vs the SP500 has recently broken out of an 18-month base and has been outperforming since. The stock is now making new relative highs and appears poised to lead. The MACD also shows strong trending behavior and appears ready to make new highs.

Relative Strength is strong, trend health continues to point higher and valuations are very reasonable. This makes HDS a solid candidate to outperform over the next 12 months and possibly beyond. As always though we manage risk first. Should the stock turn against us we will take measures to protect our capital.

IPG Photonics ($IPGP)

Market Cap: 5.09B
Average True Range: 2.33
Beta: 1.86
Forward P/E: 19.31
Sector: Semiconductor Equipment
Sales Growth Q/Q: 16.60%
EPS Growth This Year: 27.60%
EPS Growth Q/Q: 40.30%

IPGP is an Investors Business Daily Top 50 Stock. They display tremendous growth metrics, no debt, strong margins and ROE over 20%.

The Stock has been a big winner since the '09 lows, gaining 1600%. IPGP has recently broken higher from a 4-year Ascending Triangle formation at all-time highs. Buying volume expanded on the recent breakout and has now consolidated sideways since March.

The recent consolidation has come on reasonably low volume indicating modest profit taking vs distribution. All timeframes are aligned and bullish on the Monthly, Weekly and Daily.

With the Semiconductor space seeing strong rotation recently, IPGP positions to take advantage of any further strength we might see in the market.

IBD's William O'Neil says you want to own the highest quality growth stocks while the market is healthy. This is where you find big market winners. Should the market continue to cooperate, I believe IPGP is a strong candidate for out performance over the next 6-12 months potentially.

MONTHLY

WEEKLY

DAILY

I really like the structure of this large base breakout followed by the resilient consolidation above that breakout level. I like an entry in this area with stops below the weekly closing low from 5/1 at $90.60
Here is a zoomed in view of that stop level:

A weekly close below 90.60 would be the lowest weekly close in the last 15 weeks and would force me to reconsider my bullish posture.

Virtusa Corp ($VRTU)

Market Cap: 1.33 B (Mid-Cap)
Average True Range: 2.13
Beta: 2.01
Forward P/E: 19.85
Sector: Information Technology Services
Sales Growth Q/Q: 21.8%
EPS Growth This Year: 14.40%
EPS Growth Next Year: 27.04%

VRTU has been trading steadily higher since 2009 and has gained roughly 1000% off those lows. We have seen it trade in a tight consolidation range since 2014 and has recently broken out from that base on high volume.

The stock is trading above both the 20 and 50 WMA's which are stacked and rising. This is true on the Daily timeframe as well with the 20 and 50 DMA's.

We have a strong trending stock on multiple timeframes, an 18-month sideways range, followed by a volume expansion that rocketed the stock to all-time highs.

I like an entry here as price has digested the recent strong breakout on a very low volume consolidation. Stops should be placed below the weekly breakout bar at $40.28 on a daily closing basis. Using a standard 1% portfolio risk we can purchase 30 shares at the current price. This will allow for a position size to be roughly 10% of our total portfolio while risking no more than $140 (1% of account equity).

WEEKLY Chart

The longer-term weekly view shows the prior uptrend and 18-month consolidation range. I also like to see that throughout this "digestion" period the MACD indicator never dipped below Zero. This suggests the uptrend is still intact and the consolidation was just a rest within a longer trend higher.

Here is a zoomed in view of the consolidation behavior; this is textbook explosive action. The stock continues to trade against the highs and forms tighter and tighter trading ranges as volumes are relatively light. Once the range becomes too tight the stock busts through to new highs on very strong volume. This is how potential monster rallies begin.

DAILY chart

The Daily chart shows the recent breakout due to a strong Q4 earnings result with increasing sales and earnings. We have seen volumes decrease significantly since the breakout has "cooled" showing a lack of any real selling interest.

With stops placed below the low prior to the recent breakout we have a great risk/reward setup. We also have a potential level to trail stops to quickly at ~$42 should the breakout continue to hold above.