Seven technically strong stocks to buy on a dip

12:15p ET May 2, 2007 (MarketWatch)

LOS ANGELES (TechTrader) -- A stock market that looks to be topping at least short-term makes trading on the long side rather nerve-racking, but some stocks with extremely strong technicals should not be overlooked by traders with a longer time horizon.

The following are seven stocks setting up for potential intermediate- to longer-term (three- to six-month) moves, and although they may be a bit short-term overbought and the market may be due for a retracement of the recent strong run-up, they're worth monitoring for potential entry points, especially on low-volume pullbacks to support.

Taser

Looking at the daily chart of Taser going back two years, you can see a large narrowing coil-type pattern has formed. The stock recently has been thrusting back up to test the major declining tops lines and key overhead resistance. Technicals are surging and positively diverging, indicating this stock may want to break out and create a new intermediate- to long-term uptrend.

Key overhead resistance at the October high at around 10.20 may be tested next. Beyond that a move above the February-April double-top up near 11.30 - 11.35, which is secondary resistance, on strong volume could get Taser going again. Targets would be the mid-teens intermediate-term and beyond that a move to the low-20s is possible. Short-term support is at 8.

IDM Pharma

IDM Pharma is another stock on the move. This junior biotech, which had been in a seven-year down-channel, exploded in early April through its declining tops line and out across the mid-year 2005 and spring 2006 resistance highs around 6.5.

The stock then backed off and formed a very distinct pennant pattern, which was followed by another breakout last Friday, although the stock pulled back on Tuesday. The technicals, however, look great, and IDM could reach our initial trading target in the 13 range on an intermediate basis, with our longer-term projection in the 18-19 range. Short-term support is in the 6.5-7 zone.

Research Frontiers

Research Frontiers also broke out recently, thrusting out of a two-year base pattern on strong volume at the very end of January. The stock followed through in early February and then backed off very bullishly on low volume, holding the 8.25 - 8.5 area.

Since then, REFR has stair-stepped its way up to nominal new highs, reaching as high as 12.75 a couple weeks ago before backing off recently to retest the three-month rising bottoms line and the 40-day moving average. It did this on low volume with the technicals holding up very well. Beneath the current levels, there's strong short-term support around the 8.5 - 9 zone, but targets are 14, 17 and 20 short-, intermediate and longer-term.

Nymox Pharmaceutical

Breakouts of long bases on strong volume are frequent harbingers of continued price appreciation, and Nymox Pharmaceutical is another recent breakout stock. Earlier this year the stock broke out of a six-year basing pattern when it surged across key overhead resistance at around 5.75. After a secondary surge, the stock reached as high as 7 before backing and filling in a two-month large pennant-type pattern.

That pennant was recently taken out with another surge late last week. The stock backed off at its March high and is currently consolidating, but the target at the top of the intermediate up-channel indicates a move to 9 is possible, my initial trading target. Secondary target is around the 13 area, and longer-term target in the high teens. Moving average and price support is around 5.

Ceragon Networks

Similarly, Ceragon Networks just last Friday had a strong price-volume surge out of a three-year base pattern, and as a result hit the top of its nine-month rising channel. It could easily back off and consolidate, but there's a very distinct possibility that the early 2004 highs around 8.75 will be tested in the not-too-distant future.

That's my initial trading target, followed by a secondary target around 12 and longer-tem target at 18. Short-term support is around the 6 level and beneath that the trendline and moving averages would be between 5.5 and 5.75.

Spectrum Control

Spectrum Control built a nice multi-year base pattern from the low in 2001 through the spring of 2006, and although it had a nominal breakout last summer, it then pulled back in the fall and consolidated, testing the bottom of the nine-month rising channel before a January surge took it to more new multi-year highs.

Another pullback/retest on low-volume occurred in February and March before a strong price-volume breakaway gap occurred, with a strong follow-through in early April. Since then the stock has been in a very positive bullish-looking consolidation, and I'm expecting support around the 12 - 12.25 area to hold. Should resistance at 14.85 be taken out, the stock should move to our initial trading target around 17. Intermediate target is in the 20 - 20.5 area, and longer-tem target in the mid-20s.

Exide Technologies

Finally, Exide Technologies had a long drop from 24.5 down to under 2.5 from the spring of 2004 to the spring of 2006, after which the stock then turned around, moved up, backed off and retested and formed an 18-month base pattern. In early January the stock began a move, followed by a four-day bullish flag pattern that then resulted in a very strong price-volume surge, taking the stock to new multi-year highs.

A brief pullback held support and then the stock made higher highs. It's currently consolidating and near its moving average and trendline. XIDE should make it near the 12 range, my initial trading target, if it gets out over the 9.75 area. Secondary target is at 17 and longer-term target in the low 20s. Price support is at 8.25 - 8.5.

Harry Boxer is a 35-year veteran technical analyst and author of TheTechTrader.com, a real-time diary of his intraday and intermediate-term trading ideas. He has no holdings in stocks mentioned in this article. (thetechtrader.com)

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