Market’s Recent Strength Nudges 3 Stocks Into Breakouts

by James Brumley | October 24, 2011 8:32 am

Stocks still are stuck in the mud? Not so fast there, partner. While it’s true some stocks still are trapped in a trading range (even with last Friday’s surge to new multiweek highs for the market), a few stocks have gotten over key technical hurdles. As such, they might be better positioned to get — and stay — in a bullish groove. Take a look.

Abbott Laboratories

Abbott Laboratories ABT
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For years — yes, years — Abbott Laboratories (NYSE:ABT[1]) has been stuck in a rut around the $51 level. With just a quick glance, it simply looked range-bound, and content to be so; no need to bother with owning it. A closer look at the chart, though, coupled with what happened last week, now reveals there was a whole lot more going on with ABT — and a whole lot more still to come.

Since mid-2008, Abbott actually has been getting squeezed into the tip of a long-term wedge shape (framed by dashed lines on the chart). With the falling resistance line on top and the rising support line on the bottom being on an intercept course, the wedge shape can’t last indefinitely — eventually, the stock will have to move above the ceiling or under the floor. Given the lengthy gestation period, though, those breakouts or breakdowns tend to just the beginning of major moves.

As of last week, ABT has punched through the upper edge of the wedge shape, dropping a major bullish clue as a result.

There’s supporting news behind the move, too. The company topped its Q3 earnings estimates by a penny, then followed that news up by adding it could garner $4 billion annually in new drug sales by continuing to develop three new therapies. Also, its ARCHITECT analysis platform is now the underlying technology for the Active-B12 assay, which should greatly improve sales of the testing equipment.

After four consecutive earnings beats and some plausible hints that the company can grow, shares finally are starting to reflect the company’s potential.


Cisco CSCO
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The past year-and-a-half has been nothing but painful for Cisco (NASDAQ:CSCO[2]) shareholders, with the stock sliding from nearly $28 in April of 2010 to a low of $13.30 in early August. The salt in the wound is how the company still was doing well, and growing income, that whole time. It wasn’t white-hot growth, but it was nothing to complain about, either. Yet shares continued to get hammered as concerns of better competition in the networking and switches game lingered.

Things changed a couple of weeks ago, though, and the stock’s starting to suggest the market finally believes in the “new and improved” CSCO.

It’s no secret that the company finally had a much-needed head-on collision with reality in early 2011. Its big-ticket switch/router business was under attack by cheaper competition, and any profits that its networking division still was managing to generate were being siphoned off by its lower-margin consumer electronics businesses like the Flip camcorder. The decision to stop making the Flip wasn’t just about shutting down one product. It also marked the point where Cisco Systems started “getting back to basics” — the cash cows that got it to where it wanted to be in the first place.

Shares of CSCO have been on the mend since shortly after that point and are on the verge of fully breaking out of a long-term rut. The resistance line (orange) that has been a problem since mid-2010 is close to being breached — and if it is, look out above.

Yes, Cisco Systems has gotten to this point before and ultimately failed to move above that line. Things really are different this time, though. For starters, the rebound effort is unfolding at a much better (read “sustainable”) pace this time around. And the company has a much better game plan now than it did at any point in the prior 18 months.


Target TGT
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Last but not least, Target (NYSE:TGT[3]) has not just broken above its key ceiling at $52.15, but it has done so for a second time as of two weeks ago. And this time, it has done so with a great deal of conviction.

This actually is something of a diamond-shaped pattern, where the lower half of the formation is V-shaped. The top half isn’t a mirror image in this case, though — it’s simply a horizontal line acting as a ceiling. Or, it was acting as a ceiling, anyway. Now the ceiling has been knocked over.

After a multimonth brewing period, the bulls should be able to build on this move with relative ease. Investors might not want to get in too big of a hurry, though, as TGT is overextended in the very short run. We should see at least a small dip from here before the dust settles. As long as the rebound kicks in somewhere above $52.15, Target should be fine.

As of this writing, James Brumley did not own a position in any of the aforementioned stocks.

  1. ABT:
  2. CSCO:
  3. TGT:

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