I love it when a raging bull market pulls back. The steeper
the pullback, the more I like it.
Obviously, this has its limits, but money is made by buying
low and selling high in the stock market. Short-term
profit-taking in strong individual stocks and mostly bogus
economic fears are the aberrations that savvy long-term investors
take advantage of to earn consistent profits.
One timely example is the stock market sell-off preceding this
month's U.S. government shutdown. Clearly, this was not the first
time the federal government had been threatened with a shutdown,
and history tells us it will be quickly rectified. This fear is
ill founded, yet the market plunged, creating buying
The same thing happens with individual stocks. Even strong
stocks exhibiting powerful upward momentum and solid fundamentals
pull back due to occasional profit-taking. This selling can occur
anytime and often happens without warning. Professional investors
wait for these opportunities to snap up stocks at a discount.
This buying is what pushes the stock back into the long-term
My basic technical screening looks for strong stocks that have
pulled back for one to three days but are still above their
upward sloping 200-day simple moving average. This average is
what ensures the long-term uptrend is still in place and the
stock has strong odds of not continuing to fall. Once shares drop
below the 200-day simple moving average, the odds of a bounce
back become too risky to buy in most cases.
While the technical screen will narrow down the universe of
stocks to choose from, it is far from the only criteria I use. My
"Price Drivers" stock-picking system looks at three components:
technical, fundamental and institutional/insider buying. When all
components produce a bullish signal, the stock becomes a "strong
My favorite stock right now fitting all three "Price Drivers"
criteria is regional bank
Flushing Financial Corp. (Nasdaq: FFIC)
. Let's look at each of the three components.
|Flushing Financial moved higher since early May before
hitting resistance around $20 during the first week of
August. Shares pulled back to the 50-day simple moving
average and slowly moved higher to the $18.50 range during
September. Shares then plunged from the $18.50 area to
$17.50, which is what triggered my technical pullback
alert. Intraday support was found at $17.50 and the plunge
appears to be stabilized. The 200-day simple moving average
is in the $16.50 range.
|The bank posted stellar second-quarter results.
Non-performing loans improved by 16% from the previous
quarter, marking their lowest level since June 2009, and
delinquent loans decreased 12.6%. This improved credit
quality, combined with a 50% increase in earnings per share
) to $0.33, signals a solid fundamental picture. The
company also pays a 2.8% dividend.
|3. Institutional/insider buying
My favorite value-oriented fund manager, Mario Gabelli, has
been buying shares of Flushing Financial. He recently added
192,000 shares to his portfolio, lifting his total holdings
to 756,800 shares. He has been slowly accumulating shares
of the regional bank, indicating a strong bullish bias.
Gabelli subscribes to the value philosophy of Warren
Buffett combined with the ideas of value-investing pioneers
Benjamin Graham and David Dodd. Suffice to say, when
Gabelli moves on a stock, it's a strong endorsement for
further upside. In addition to Gabelli, hedge funds Bryn
Mawr Capital Management and Hutchin Hill Capital also own
stakes in FFIC.
Risks to Consider:
No matter how many hedge funds are buying or how strong the
technical and fundamental pictures are, all stock investing
involves risk. Unforeseeable "black swan" events could occur at
any time. Always use stops and position size correctly when
Action to Take -->
Buying shares now on the pullback with stops right below the
200-day moving average in the $16.50 range makes good sense. My
six-month target price is $23.
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