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High-Momentum Stocks for Slow-Momentum Season


Ansys, New Oriental Education two to watch.


Christmas is upon us, and traders are anxiously awaiting Santa's arrival for some much-needed holiday cheer. Unfortunately, the charts don't really hint at any major Christmas rally; in fact, with the sluggish action we saw in options expiration last week, traders may be on guard for further price declines.

I'm watching the 50-day moving averages as my cue to move in or stay sidelines. You can pull up the SPY, QQQQ or a multitude of other indexes in order to vividly see the battle that's taking place here. While bull markets often use this line for support, bear markets use it for resistance. The jury's still out to determine what this recent 50-day meeting will produce.

Assuming jolly old St. Nick arrives on schedule, one must be ready to pounce. To that end, I'm focused on the most technically attractive names offering up decent risk/reward ratios.

Take Ansys (ANSS), for example. The stock has been basing since early October, and the recent range above the 50-day moving average seems to be getting narrower, suggesting a bigger move is coming soon. Should we see movement in the market back above the 50-day, I would look here first, then enter on a move over Friday's high of $30.42 with a stop at the same point on a close, should it not get moving.

Given that it's also going to be particularly thin this week, traders may push around higher momentum names. This brings me to small-cap China stocks, with an eye on New Oriental Education (EDU) and its bump against the 50-day as well. I would enter on a power move above the 50-day with volume, and look to set a stop on a break back below this level.

If we start to see some holiday perkage, I'll be ready -- but if this turns out to be another coal-filled Christmas, I'll stay on the sidelines protecting capital.
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