Look For Bullish Pullbacks After Leaders Break Out.(THE IBD 100)(INSIDE THE 100)

Byline: JONAH KERI

Halfway through 2005, the major market indexes have made little headway, frustrating investors hungry for gains. The action of individual stocks may seem equally frustrating, as stocks break out of bases, then turn around and head lower.

Don't fret. A pullback after a breakout isn't a reason to panic. Some can be bullish, eventually leading to big gains.

Consider the action of leading stocks over the market's history. IBD's studies of bull markets over five decades show that four out of every 10 stocks pull back to their initial buy point before going on to hefty returns.

The broad market's action often causes this behavior. In the course of a rally, the market may move up, then stall, then pull back. Leading stocks tend to shadow that action.

It's important to learn the difference between a healthy pullback and a dangerous decline. Start with the volume. If your stock shows mild volume on the way down, that means that institutional investors are likely hanging onto their shares.

A strong stock will then find support at a key level. Some will hold up around their initial buy point. Others will bounce off the 50-day (or 10-week) moving average, an area at which money managers often step in to add shares.