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November Statistics And Two Runaway Stocks

11/09/11 09:01:30 AM
by Billy Williams

November is a turning point in the trading cycle, and two stock leaders are at the starting point of what could be a spectacular runaway move higher.

Security:   PCLN, TDG
Position:   Buy

This November seems to have the potential to be a banner month for an otherwise tough year, plus there are two stocks that may be worth taking a position in as we close out 2011. November is the no. 2 month for Standard & Poor's 500 (SPX) performance, according to the "Stock Traders Almanac," the start of its "Best Six Months" of the year, where stock market performance outperforms up to April and May, compared to the rest of the year. As the US Thanksgiving approaches, traders who are considering taking a position should note that that the week leading up to the holiday have been up 14 out of the last 17 years and the day before and after Thanksgiving combined have tallied up only 12 losses in the last 58 years.

In addition, historical patterns reveal that Thanksgiving in a pre-Presidential election year show significant above-average performance.

Two stocks are making strong progress during November, Priceline (PCLN) and Transdigm (TDG). See Figures 1 and 2.

FIGURE 1: PCLN. PCLN has been one of the most reliable stock leaders in today's market. Even during a massive selloff in the overall market and the looming threat of a European debt crisis, it has maintained trading near its all-time high. Note the thrust bar formed, signaling an entry move.
Graphic provided by:
Priceline has made a strong move up, signaling a thrust bar yesterday on higher volume, showing a lot of fuel behind Priceline's move upward. A stock leader in the past and present, Priceline has been in a base pattern for several months but maintained trading near its all-time highs during a massive selloff in the overall market. This makes PCLN a stock worth buying, as its high relative strength during a period of overwhelming weakness in the market as well as in the face of European debt meltdown makes it a worthy candidate on any trader's list of stock candidates.

Transdigm is another such candidate. A manufacturer of aircraft parts, it has racked up two impressive quarters of sales growth at 51% and 52%, respectively, while also touting a return on equity (ROE) of just over 25%, well above the 17% ROE of typical stock leaders. Signaling a buy on November 8, TDG experienced a thrust bar as price broke higher on a surge of trading volume.

FIGURE 2: TDG. TDG is another impressive stock that is about to trigger the 50/6 rule and signal a long entry despite its high debt-to-equity ratio.
Graphic provided by:
The thing that is troubling about Transdigm is its debt. Right now, its debt-to-equity ratio is whopping 299%, which acts as an albatross around its neck and is likely to drag its price down or, at the very least, slow its ascent. Plus, its price action has been a bit erratic leading up to the buy signal which, in this market, isn't a sure sign that the stock will outperform.

Though the trend is up in the general market, the specter of Europe's debt crisis looms and you want to have as many of the success factors behind any potential trade as possible.

However, there is one thing compelling about TDG that may make it worth looking into closer later in the next week.

TDG's price low was registered on October 4, 2011, at $74.30 and has since climbed to a price high of $98.30. This impressive run may trigger the 50/6 rule, which states that any move of 50% within six weeks sets up a stock as a buy on a purely technical level without regard to its fundamental ranking. If TDG hits a price target of $111.45 by November 14, then it will meet this condition and you can look at entering a position during a breakout higher at that time or on a price pullback.

In addition, earning reports for TDG are set to come out on November 14 as well. EPS estimates were reported by TDG to be 26% higher than last year's estimates, and if the price action from yesterday is any indication, those estimates may have been rumored to already be on target or higher.

Watch TDG's price action during the next week and be ready.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

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