The Stock: Blackstone Group LP Recent close: $12.75 (U.S.)
The Trend: Trend followers focus on stocks that are breaking out of their Stock Trends Weak Bearish indicator.
(You can find all the Stock Trends technical analysis indicators listed on TSX stocks in Saturday's Report on Business and soon on this site.)
The Weak Bearish indicator shows a stock's price has moved up significantly against its long-term bear trend, as defined by the relationship of the 13- and 40-week moving average trend lines.
Currently, 75 per cent of stocks traded on the NYSE are Weak Bearish, and many of them have rallied impressively with growing trading volume in recent weeks. Although the long-term market picture remains Bearish (the majority of stocks still have a 13-week average price that is below their 40-week average price), it has been a stock pickers' high season this spring.
The NYSE has been particularly plump. Every week for my subscribers I write a report that highlights stocks that meet certain trend conditions and the report has been thick lately. Many of these stock picks are financial services stocks, especially after last week's 23-per-cent jump by the sector.
The Trade: Investment services stocks like Blackstone Group have been notable movers among the financials. BX turned Stock Trends Weak Bearish in early March when the stock advanced on high trading volume from the $4.50 (U.S.) level to $6.50. The Stock Trends high volume indicator (an alert that the weekly trading volume is more than double the stock's 13-week average trading volume) accompanied the stock's next leap to the $8 area three weeks later. Last week's 23-per-cent advance, also highlighted by a high volume indicator, pushed BX to its highest level since the share price dropped precipitously in the storm that hit the financial sector last October.
This breakout stock has out-performed the S&P 500 index by 140 per cent in the last three months. Investors are turning bullish again on investment managers, and the Blackstone private equity brand has been attracting a fair share of trading activity - over 168,000 transactions last week. The combination of a Weak Bearish long-term trend, strong relative price performance over the past quarter, and high trading volume makes BX a good stock pick in this sector.
The Upside: Technical traders know that the market has a memory. Stock prices move to the shifting balance of buyers and sellers, and as prices hit new levels this balance encounters support and resistance shaped by previous balances. A look at the graph of BX shows that in both the summer and autumn of last year the stock dropped to the $14 mark, but held. This is called a support area, a price at which buyers came into the market for BX sufficiently to hold the stock from dropping further.
Although that mark was blown away in the stock's subsequent collapse in October, it now represents a resistance level as BX rallies back from its bottom.
Buyers who bought BX last year at the $14 level now represent some of the stock of sellers who, after months in the red, now feel it is time to cut loose and perhaps break even. However, if the bullish sentiment pushing BX is too great, the stock price will move through this resistance level and advance to $16.
The Downside: The positive factors that have lifted BX from $8 to $14 in the last couple of weeks are also factors of caution. Every stock that advances aggressively is due for a pullback. Rampant enthusiasm will dissipate, even collapse. Investors buying BX now take on the risk of a retreat in the share price - perhaps back to the $10 level, where support can be anticipated. A move below $10 would represent a failure of the stock's breakout and should trigger an exit.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to