The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

23 May 2008

Saved by the bell!

Long time readers recognize that I view trends differently than most chart readers, including how and when trends die and reverse. For example, there was my recommendation to sell 1/2 of our position in Intuitive Surgical/ISRG at ~$335, while Wall Street (Jim Cramer included) were ga-ga for the shares. Although not explained at the time, one perception I employ is the difference between the momentum, price, and breadth high prices. (And vice-versa for the low prices.) Market watchers will recognize these chart points as double, triple, and head & shoulder tops (and bottoms); I prefer to sell during the momentum high but purchase during the breadth low.

Well, the price and news from yesterday verged on the need to liquidate the remainder of the ISRG position, but as this post's topic header has it, the position was saved by the bell. First, the 'news' that the company's CEO stated during a conference yesterday morning that slower growth and lower margins for the company loomed dead ahead, which caused traders and investors to sell hard, was later refuted to be rumor. Then the share price closed spot-on at multiple levels of support (200 day sma included) that set up the possibility for a downside price gap on today's open. After the markets closed, however, came news that Intuitive Surgical/ISRG will become a member of the S&P 500 index, which news typically causes index funds to purchase immediately the shares of the new addition. Intuitive Surgical/ISRG shares reacted accordingly to the sudden onslaught of buy orders by surging to ~$287, and continue near that level this morning in pre-opening trades.

But how likely will ISRG be to hold these levels, and not turn lower once again? Remember that the shares have merely reversed, at worst temporarily, and not broken above any levels of resistance. For that preliminary answer, we investigate how strong are the hands that buy and own the stock at this level...

[click on each chart to enlarge]

The chart above shows volume at price (left scale) and on balance volume (bottom scale), two technical studies that measure the accumulation or distribution of the total volume. Neither study involves price, etc, which makes each study an excellent secondary analysis. (Explanations of these studies and how to use them can be found in this blog's archives, or elsewhere on the web.) For the record, I see accumulation, despite the past 8 months of sideways price activity.

For a closer-in look of the activity this morning, I use...

... which also betrays steady and powerful accumulation. Contrary to yesterday's rumor, comes this real news...

Cowen says that presentations at the American Urological Assn this week point to expanding use of Intuitive Surgical/ISRG's da Vinci system for more types of surgery, potentially raising addressable U.S. urology procedures by 23% and the total addressable U.S. mkt by 6%. Cowen analysts also saw strong interest from urologists in broadening daVinci use beyond prostatectomy, increasing their confidence level in their 63% and 49% procedure growth ests for 2008-09. Firm sees potential upside in their 2008 sales est, and reits their Outperform on ISRG.

New investments of Intuitive Surgical/ISRG, even at ~$280, could prove timely; perhaps equally as timely as my recommendation to buy during the last primary base at ~$85.

Full Disclosure: Long Intuitive Surgical/ISRG
-- David M Gordon / The Deipnosophist

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