Updating Tuesday's Action

...On Tuesday, Building Materials (BMHC) (a member of the past 11 weekly screens; first screen on June 1, 2005 at $64.10) was up $4.27 on volume 48% larger than the 50-d m.a. This was the first major push since the stock broke back above the 50-d m.a. Below, you can see what we have said about the stock over the past three weeks. We came very close to removing the stock from the screens but decided against that idea on August 13, 2005 because the stock did not violate any initial buy areas. I am glad that I maintained my PATIENCE (something I always preach on MSW) because the stock is currently trading at $92.12 (Wednesday afternoon) after reports that 2Q profits almost tripled. The stock is up another 12% today as we approach the afternoon trading hours.

Here at MSW, we let the big winners run and always cut losers and today we proved that we were on the mark once again. BMHC never became a loser so we did not cut the stock even though it did violate the 50-d moving average. The stock is up over 20% since I said a “trend buy” was valid this past weekend and the total MSW gain is now above 43% in this poor summer market. The $60-$100 run is nearing completion and I am very proud with my stability and decisions on this stock.

8/28/05
BMHC – 75.12, This is the area to place a trend buy with a tight stop, especially due to the weak market.

8/20/05
BMHC – 72.61, Slightly below the 50-d m.a. but holding above our original buy point. A major red flag would be a breakdown below $68 (a triple bottom breakdown on the P&F chart).

8/13/05
BMHC – 71.72, The stock was down 1.89% on the largest volume of the past few years yet the stock ended the week $3 higher than the lowest point. With the huge volume and the recovery towards the end of the week, BMHC bought itself one more week on the weekly screens.

The lesson: always have patience with your positions that are not showing a loss, especially during tough times in the market. They will reward you well if you learn to let them run (patience is key as Jesse Livermore always said).

As for yesterday, we saw the energy stocks lead the market to a gain after the devastation of Hurricane Katrina became more apparent. Stocks such as Fording Canadian Coal Trust (FDG), Valero (VLO), Peabody Energy (BTU), XTO Energy (XTO) and others lead the sector higher after damage reports were less than expected on rigs in the Gulf. More familiar MSW stocks such as Advent Software (ADVS), CB Richard Ellis (CBG), Sterling Construction (STV), Building Materials (BMHC), Tenaris (TS) and Apple Computer (AAPL) led the market higher. Other stocks that we are not covering that continued to move higher included Kendle International (KNDL), McDermott Intl (MDR) and William Lyon Homes (WLS).

Hansen Natural, a long time member of our weekly screens from earlier in the year is starting to make a move back above its 50-d m.a. but it is doing so on below average volume. Before the split, HANS completed a $60-$100 run in three months before retracing and forming a new base (where we removed the stock from the weekly screen and cashed in our profits). It will interesting to watch HANS as it continues to form the six week base pattern that dipped below the 50-d m.a. briefly. (Side Note: HANS is up another 4.41% on Wednesday bringing it just below the pre split adjusted $100 level ($50).

The NASDAQ is still below its 50-d m.a. but may be forming the bottom of a base that is just starting to take shape on the weekly charts. A quick glance at the daily chart and everything looks great but the timeline is still too short for a valid basing pattern. Relative strength is trying to regain the previous high set back in July but is still a way off of 52-week high levels set last November (2004).

I don’t like speaking about the DOW these days because it is below both the 50-d and 200-d moving averages with a relative strength line that is making multi-year lows (going back to the bubble burst years of 2001 and 2002). The point and figure charts shows us that the index is in a confirmed double bottom breakdown that triggered on August 23 as the DOW sliced below 10,500.

Piranha