On the second opening of this new uptrend, I decided to pull the trigger on ALGN. Of course, I didn’t make the decision or place the order this morning. That was done last night with plenty of time to think it through. After careful analysis, I couldn’t find a glaring reason not to give this stock a chance.
On the Fundamental side, all of the IBD ratings are outstanding. ALGN boasts a 98 Comp and EPS rating, and 80 Group RS rating, As for SMR and Timeliness Ratings, and Bs for A/D and Sponsorship Ratings. The only fundamental flaw I saw was that the Dec-11 quarter had better EPS and Sales than the Mar-12 quarter. Aside from that, this is a pretty solid fundamental stock.
Technically, ALGN was in a Stage 2 Double Bottom base with a length of 7 weeks and a depth of 17%. The second leg of the base did undercut the first. I counted 11 accumulation days and 7 distribution days during the base.
IBD’s Stock Checkup shows us that ALGN has the best Comp, EPS, Relative Strength, and SMR ratings in its Medical – Supplies group and has the fourth best A/D Rating. It draws yellow lights for its Industry Group Rank (40) and its Estimate Revisions (up). It draws red lights for # Qtrs of EPS Acceleration (0), EPS Est % Chg (18.55%), and Annual Pre-Tax Margin (21.7%). ALGN also manages to post all green lights on the technical side.
ALGN broke out yesterday, closing at 33.25 on 285% greater than average volume. One thing that concerned me was that it had gone as high as 35.10 midday and then retreated, but it still closed in the top half of the daily range. This thinking was reinforced for me by today’s Big Picture column pointing out that same fact.
After closing at 34.73 on 125% greater than average volume today, I am already showing a little more than 2% profit over my 33.99 entry point and there is strength behind that. I will set a stop loss at 31.64 which would give me a 6.91% loss and will target an upside gain in the area of 20-25%. If the market starts showing heavy distribution or goes back into correction, I will likely ratchet that down and use my 10-day moving average rule as I did with BEAV and PCLN.