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TRADING SYSTEMS


For GCI, A Pre-Earnings Buy Signal

07/16/10 12:28:40 PM
by Donald W. Pendergast, Jr.

Sometimes it pays to sell a stock that has had a strong run just before earnings are released. In the case of Gannett Co. (GCI) shares, there appear to be plenty of bullish reasons to buy in anticipation of a runup toward the $16.50 area, as the smart money is likely already onboard for the next swing higher.

Security:   GCI
Position:   Buy

If you read USA Today, then you already know a little something about Gannett Co., the publisher of this nearly three-decade-old fixture of early morning Americana. Birthed on September 15, 1982, the national newspaper was an instant hit, quickly gaining and retaining a faithful readership base despite remarks by some who insinuated that the publication was nothing more than a "McPaper," especially when compared to weightier news names like the Chicago Tribune, New York Times, and Washington Post. Like it or not, USA Today should be around for a long time to come, and the past 16 months' performance in Gannett shares has been outstanding. Here's a look at a very promising buy signal in GCI, one that may have enough steam to take it at least $1.25 to $1.50 higher in the next couple of weeks.

FIGURE 1: GCI, DAILY. A mechanical Raff MarketSpace buy signal occurring as part of a continuation pattern is definitely worth a second look. Should the NVI and PVI both trend higher, a more substantial uptrend may be the result.
Graphic provided by: MetaStock.
Graphic provided by: Raff MarketSpace Stock System advisor from MetaSto.
 
One of the more interesting ways to trade a mechanical system like the Raff MarketSpace stock system in MetaStock is to add a bit of discretionary wisdom to the mix; one of the better ways to do this is to take trade signals that occur in the wake of a meaningful test of key support. In this case, GCI has managed to rise above and then retest its 200-day exponential moving average (EMA), a big confidence builder for anyone considering this long entry.

If you look closely at Figure 1, you'll note that the new buy signal is also part of a continuation pattern. This is when a stock makes a major low, stalls at resistance, and then trades sideways for a time before breaking out, continuing in the original trend direction created after the major low. That's just what we have here, and since the 200-day EMA frequently acts as a springboard (despite occasional overshoots), this looks like a very low-risk long entry here.

At the bottom of the chart, note the configuration of both the negative volume index (NVI) and the positive volume index (PVI). Price is rising steadily on negative (lower) volume, a sign that the big-money folks like mutual funds are steadily building their positions in GCI, no doubt because the stock has an excellent set of earnings growth rate projections for the next 12 to 18 months. Meanwhile, the stock has ceased falling on positive (greater) volume, finally going flat. This is very encouraging for short-term swing traders, but those interested in larger gains will probably want to see both the NVI and PVI trend higher together. If you see that happen, look for suitable places to enter and/or add to existing long positions.



For now, let's just assume that GCI has enough suds to mount a rally up to the next key resistance zone near $16.50 to $16.75 (pink shaded area on chart). Entering long on a minor intraday pullback after earnings are released might help you obtain a better fill than today's closing price of $15.11; once filled, immediately place a stop-loss just below the 200-day EMA, near $14.25 or so. If the stock rises, begin trailing a three-bar stop of the daily lows, tightening to a two-bar variety if $16.50 is approached. More aggressive types might consider holding out for $16.75 or even $17.22, the prior swing high, but only you can make that call.

Today's intraday action in the Standard & Poor's 500 suggests that a major tug of war is under way, with the bulls and bears slugging it out for supremacy as the summer season matures. At times like these, it usually pays to go for reasonable, attainable short-term profits — and then only by trading either the strongest stocks (for long trade setups) or the weakest stocks (for short trade setups).

Just be sure to use modest position sizing and logically placed stops in case the market decides to suddenly reverse against your position.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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