Excellence is about peak moments.
When an audience listens to Placido Domingo sing, they know the opera singer will deliver a breathtakingly beautiful peak moment, and often a series of them.
A stock is a mundane thing compared to an opera singer. After all, it's only money. But if your stock is rising fast, you might be forgiven for confusing it with an aria.
In August, Domingo told the Telegraph that "some of my best performances are under the shower." Likewise, a stock's performance begins in the base when many investors aren't watching.
A strong stock will begin to show peak closes on a weekly chart, often as the stock builds the right side of the base. The high price closes within a weekly range point to strength. Institutional buyers are coming in to support the stock week after week.
Appliance maker Whirlpool (WHR) was more of a turnaround candidate than a hot growth stock in the first half of 2012.
The stock began forming a base in late March 2012, eventually consolidating until a cup-with-handle base was finished about five months later.
By the Aug. 31 issue of IBD, Whirlpool had an 85 EPS Rating, an 87 Relative Strength Rating, a worst possible E grade in Sales/Profit Margin/Return On Equity, and a B+ in Accumulation. These grades weren't good enough to make Whirlpool a top-rated stock, but they did reflect a turnaround in progress.
Earnings per share had increased 120% and 91% in the previous two quarters. After-tax margin grew from a minuscule 0.5% in the second half of 2011 to 2.5% and 2.7% in the first half of 2012. OK, 2.5% and 2.7% aren't great after-tax margins, but they were headed in the right direction. And for turnaround candidates, direction is initially more important than location.
The B+ Accumulation Rating pointed to buying by institutional investors. The chart also pointed to fund support.
Look at the eight weekly closes on the right side of the base 1 — just before the handle formed.
All eight weeks involved gains. All the closes were high in the weekly ranges. Volume was up from the previous week in five of the eight weeks 2 and above average in two of the weeks.
Whirlpool cleared a 75.80 buy point in early September and advanced 77% in about eight months.
- Placido Domingo