Sunday, July 30, 2000
Techne Corp. - TECH
Techne Corp. was one of the first stocks to breakout in the most recent rally. If you were lucky enough to get in on the breakout, and get out near the top, you saw your investment appreciate approximately 95% in less then a month.
The stock broke out of a 12+ week base on heavy volume. The handle of the base which lasted about 3+ weeks was a bit sloppy, but the sloppiness came on low volume. If you missed the initial breakout because of the sloppiness, and the sharp move from the bottom of the base through the breakout area, you got a second chance to enter the stock as it paused for about 7 days, and consolidated in a triangle formation. The stock broke out of the triangle on extremely heavy volume and proceeded to around 120, where it paused again to consolidate its move before making its final advance. Up to this point the stock had experienced three distribution days. The first one wasn't concerning as it came right after a big breakout. The second one, again, wasn't to concerning as it too came after a big move. But this one should've raised a cautionary flag, as the volume was extremely heavy. The third distribution day came two days after the second, on above average volume, but nowhere near as heavy as the first two. The stock then proceeded to breakout of that consolidation and head higher on what would be its final run, and the formation of a head and shoulder top. A fourth day of distribution came quite quickly, and on the heaviest volume since the run began, forming the left shoulder. The yellow flag should be up and waving at this point. The run the next day to new high's on just average volume should have put up the red flag. The following day the stock ran up on the open 12 points, only to reverse course and close down 5+ points on extremely heavy volume, forming the head, and logging the fifth day of distribution. This should've been the your final warning, and put up the checkered flag, as this signaled that the stock had run its course, and this was the time to get out, or at least to move up your stop loss to the previous consolidation.
If you were still in the stock at this point, you got another chance to get out with a handsome profit. The stock tried to rally, but the rally came on decreasing volume. Some tried to argue that the volume was above average. But a closer examination would've revealed that it didn't compare to the volume during the rest of the move or the last two distribution days. The sixth day of distribution was then logged, forming the right shoulder and breaking down through the neckline. You could've gotten out at this point, and still would've held on to your profits even if you would have bought the stock as late as the third consolidation in the 120's.
Remember, 4 to 5 distribution days is enough to topple a stock or an index.
Even though the stock has experienced two days recently that look like solid accumulation, big volume spikes on price surges, the stocks relative strength line has broken down. If you read the article on the SOX index, then you know that a breakdown of the relative strength line, is usually a good precursor to what's to come for a stock or index.
If you're still holding the stock, you may be asking for trouble. Those that bought on the first two breakouts still have a profit, everyone else is now sitting on a loss.