I've been patiently waiting for the general markets to stabilize and have been very carefully picking my spots over the past several weeks. Despite the fact that I have been trading less frequently, I do continue to add potential longs to my watchlist. The general indexes are at an interesting spot here as the S&P500 pauses near its declining 50-day moving average. I can see multiple scenarios happening from here and remain open minded to all of them.
As many of my regular readers know, I prefer to look for stocks that are showing relative strength and the following two stocks have held up very well through the recent correction. While I think the markets could use a little rest here, these stocks are far enough along in their bases that they could be ready to breakout soon.
Dr. Reddy's Laboratories Limited (ADR) (Public, NYSE:RDY) is one stock that I have been stalking since June. I have been waiting for it to base a little and the recent price action near the 20-day moving average looks positive to me. It is trading in a triangle and is close to testing the upper trendline. RDY is a little thin, so traders should be careful with it.
Finisar Corporation (Public, NASDAQ:FNSR) is another stock I've been stalking for weeks. FNSR had fantastic rally earlier this year as the Network group caught fire. It has been consolidating since April and could be ready to emerge from its base. It looks like $16.50 would be the first level to watch just above, and a strong move above this price should help propel it to new highs.
I'm still leaning towards the general markets heading lower before a meaningful rally can emerge, but I am also seeing a lot of traders sharing those negative thoughts. This could set the stage for continued strength when no one is expecting it, which is why I continue to prepare for both long and short plays. If the market rallies further, then these two should breakout.
Good Trading,
Joey
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