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Not for the Faint of Heart

The high-fliers I have been showing can reap huge returns, but make sure you can handle the volatility.
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All this week I have been looking at some key monster-type stocks -- stocks that only seem to know one direction, and that is up. Wednesday, it was a retailer and a drug manufacturer. Today's names are essentially in the same two sectors.

Ross Stores (ROST) is, in many ways, is in the sweet spot as a retailer. Its bread and butter are women's apparel, but the stores carry a reasonable assortment of footwear, housewares and toys. It's more the dollar-store-type retailer, but it's as efficient -- and, most important, the business just continues to grow. Ross Stores' chart, as with almost all of those we've looked at this week, puts out a good showing. In fact, it's a great showing. Here's the long-term view.

Ross Stores (ROST) -- Quarterly

Source: Investools.com

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Still, what you see is that the large AB=CD target, up on this very long-term time frame, has already extended beyond its 1:1 projection. That's a caution flag.

If I drop back to just the long-term view, as exhibited via the monthly chart, here again I can see that the AB=CD projection came in around the same $56 target. Again, that underscores the warning from the prior chart.

Ross Stores (ROST) -- Monthly

Source: Investools.com

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What is also visible is another AB=CD price projection, which in effect now has a price projection of just over $62. The price projections are always 1:1, but can extend sometimes, so maybe there's a bit more room to run here. But the takeaway is that this would now be a bit late in the game, and this stock is likely due to at least consolidate reasonably soon, if not fall back.

Wednesday I harped on the notion that, when breaking out, most stocks in a suspect breakout will retrace to do a retest-and-regenerate sequence. Note that I say "most stocks." Ross Stores is an example of one that simply did not, as seen here.

Ross Stores (ROST) -- Weekly

Source: Investools.com

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Although this is not the high-probability case, it does happen -- and, in this case, there really weren't any signs that it would. Sometimes this happens. It's unfortunate but true.

Flipping to today's biopharmaceutical name, Alexion Pharmaceuticals (ALXN) was hit by some heavy-volume selling Wednesday, with the stock dropping more than $6 at one point. What triggered the high-volume decline? I'm sure someone will come up with an excuse, but could it simply be that the stock was extended. It has, after all, met the immediate AB=CD price projection, as displayed on the weekly chart?

Alexion Pharma (ALXN) -- Weekly

Source: Investools.com

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Sure, you'll want to let the stock come in some when it gets hit with higher-volume selling, but I don't believe that is a reason to abandon the stock. On the longer-term time frames, it is doing just what it should be doing, and it holds even greater promise of higher valuations to come.

Alexion Pharma (ALXN) -- Monthly

Source: Investools.com

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Alexion Pharma (ALXN) -- Quarterly

Source: Investools.com

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These high-flying names are not for the faint of heart. When they extend to or beyond their price projections, you have to trim them some, then wait for a retracement and do it all over again. Alexion is just another example of why that's the case. I expect Ross Stores will do the same soon.

Thanks for listening and until next time, just keep trading the charts!

________

Editor's Links:

  • Fitz Bits: Stay Long Alexion
  • Dressing Down Michael Kors
  • An Assessment Exercise

At the time of publication, Little had no positions in the stocks mentioned.