Darvas Stocks Pull Back, Good News for Darvas Traders?

by Darrin Donnelly on October 1, 2010

Here’s a quick market recap for Darvas traders as we close out the week and begin the new quarter…

The October 1 session saw the major indexes finish slightly higher as the S&P 500 led with a gain of 0.44% and the NASDAQ lagged with a gain of just 0.09%.

Volume was lower across the board and the indexes closed near the middle of the day’s tight range.

All in all, the indexes gave us a ho-hum closer to the week with no real conviction in either direction.

Individual Darvas stocks, on the other hand, gave us some clear signals of consolidation.

BIDU broke below the $100 mark on higher volume.  This stock is still trading above its 10-day moving average line and is up nearly 13% from its recent buy point.  However, it’s now 7.8% off its highs.

PCLN closed below its 10-day moving average line for the fist time since August 31.  This stock has been on a major run and had consistently bounced off the 10-day line as it climbed higher and higher.

NFLX gapped lower and also closed below its 10-day line.  It finished the day down 4.63% and is now more than 11% off the all-time high it hit on Thursday morning.

These three Darvas stocks have all been on tremendous runs until these last two days when sharp pullbacks have occurred.

This type of action tells me that some of our Darvas stocks are ready to take well-deserved rests. 

Though it can feel painful during the actual pullback, such price action is actually good news for Darvas traders as several of these stocks shot right out of their bases and zoomed into “over-extended” levels.  We need to find new support levels for these powerful movers.

Remember, stocks don’t go up in a straight line and it’s these consolidation periods that create new Darvas Boxes and sound bases, which show us our support levels.  

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