Thursday, January 24, 2008

The market's new and old leaders

Two days up does not make a new bull market. We need to watch for an IBD style follow-through day and watch for breakouts from sound bases. This market needs to prove itself so don't get too comfortable.

This doesn't mean that it is time relax, however. Keep a look out for new leaders and stay away from broken down former leaders. Take for example the two charts below. Chipotle (CMG) has held up reasonably well and looks to be forming a nice base.

Flotek Industries (FTK) is a different story. I know this company very well as I owned it way back in June 2006 and sold around February 2007 (Yes it was painful watching the run that followed). I had to laugh though when I read that they blamed their recent earnings warning on "bad weather". That is what they said just before that big dip in 2006. It looks like the market will once again punish FTK severely. This is going to take a long time to recover (probably over a year) but I wouldn't be surprised to see it hit 55 again. Flotek went too far and too fast and I think the management started to believe their own hype for a little bit.

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