The Material Decisions We Face

Welcome to this week’s edition of The Growth Stock Report!

Traders,

The overall market showed us some flashy moves for the week. We were happy to see our positions work for us, but we are beginning to get “that feeling” our conviction will be tested when (and not if) correction mode begins.

Our current position:

VERY CAUTIOUS, USE SMALL PROFIT TARGETS!

In this week’s edition you will find:

Where We Are:

Current positions:

XTO Energy (XTO), our best performing energy pick, is already beyond a 20% price target, so we’re sitting pretty with half a position and keeping an eye on overall sector health.

KCS Energy (KCS) put in another new high for the week, though is still short of our 20% target from its buy-point – which will hit at 18.10.

Statoil (STO), another energy buy candidate listed in the January 30th edition of The GSR is just a shade short of its 20% profit target of 18.97.

Metals USA (MUSA) moved higher for the week before backing off at the psychological 25 price. We have already hit our 20% mark and are riding with half a position.

Mannatech (MTEX) is benefiting from a strong healthcare environment and remains short of our 20% profit target of 27.

Palomar Medical Tech. (PMTI) also benefited from healthcare enthusiasm, though is short of a %20 profit target which we expect to be hit at 32.80.

We need to remind ourselves that our recent breakouts have been exceptionally good to us. We love it when our stocks only move up and not down, but the reality is we’re likely to see pullbacks in the near future. Stay the course.

Taking a look at the overall markets:


The Dow 30 and S&P 500 hit highs not seen since mid 2001.

The Nasdaq remains rangebound, short of a key high made 8 weeks ago. Healthy markets are led by tech issues. With key companies in techland reporting earnings this week, we should get a better gauge of overall sentiment here.

We continue to believe the key to this market will be found in the Semiconductor Index (SOX), which has been sluggish, but yet to give us a technical indication of real weakness.

Transportation ($TRAN) hit an all time high.


Commodity based issues ($DJAIG) are blowing up.

Banking stocks ($BKX) moved north of of its 10 month trend-line is looking healthy, though any drop below 98.02 may trigger heavy selling.

Internet stocks ($IIX) were quiet for the week, just holding on to a long-term trend line of over three years. Like the banks, any fall below the trend line (145.50) will likely entice selling.

Retail stocks ($RLX) as a whole are looking rather lackluster, though names from our top earners are blowing up: AEOS, BEBE, COH. We do NOT see an ideal buy situation for these stocks due to extended technical patterns and relatively weak sector performance.

Pharmaceuticals ($DRG) put in a healthy upside move, extending from a key downward trend-line.

Biotech ($BTK) fell apart, breaking down from over a four month range. The index is now parked at a critical trend-line level.

And Energy ($IXE) continues to tick higher, for its sixth week of consecutive highs.

Charts courtesy of Stockcharts.com.

Technically speaking, the bullish scenario for the Dow and S&P 500 has played out with new highs made, but the question is will it play out completely? Without participation from the techs, our answer i – NO!. So until techs break their range we are suspicious of the overall market.

Volume: Three days of Distribution for the Naz on the week, with two for the Dow and S&P 500 signals trouble. Unless we see accumulation from the institutions the situation is BEARISH.

Leadership: The top 10 industry groups from the 6 month RS screen are:

  • OIL GAS DRILLING EXPLO
  • HEALTH CARE PLAN
  • RESIDENTIAL CONSTRUCTI
  • STEEL IRON
  • RESORTS CASINOS
  • INDEPENDENT OIL GAS
  • SEMICONDUCTOR-BROAD LI
  • OIL GAS EQUIPMENT SVCS
  • TEXTILE MANUFACTURING
  • CONSUMER SERVICES

New Highs vs. Lows: Impressive New High showing for the NYSE, while the Nasdaq has been quiet with Highs and Lows. We do not look to much into these numbers at this juncture.

What We Like:

We like the way this market has gone for us. Though see nothing to commit new money to.

Our energy and commodity picks are due for a correction. Ideally this will happen after we hit all our 20% price targets, though any sign of distribution or a technical correction we will use as a signal to take a little off.

As much as we have loved or material based stocks, we have never liked the growing popularity of them. Sheep get slaughtered.

Our “aggressive small-cap” candidate from last week fell apart before signaling a buy. We love the fundamentals of this one, and will be keeping an eye on it for an invitation to get in on it.

We’re not going to call a top BUT we believe homebuilders are ripe for it. We care watching for any kind of “emotional turnaround” near these levels.

Due to our overall concern of for sustainable of upside market momentum, we list the following breakout candidates as “canaries in the coal mine”. All of the following possess top fundamentals:

EXP, HANS, NCI, OMM, OSG, PETD, THX, and URBN.

What Was Important About Last Week:

Drug makers Biogen Idec and Elan pulled their jointly produced Tysabri, after stating one patient died and another developed an often-fatal disease in combining Tysabri and Avonex, another Biogen MS drug.

Due to Microsoft’s one-time dividend payout of $32 billion in December, personal income rose to an all-time record gain of 3.7%. How ’bout dem apples!

New homes sales fell 9.2% to an annualized rate of 1.106 million units last month. The inventory of unsold homes was at its highest level on record. Some say it was the bad weather.

The No. 1 U.S. auto maker, General Motors reported a 12% drop in U.S. car and truck sales in February from a year ago. No. 2 auto maker Ford cut its quarterly production target after reporting a 2.9% decline in February sales. DaimlerChrysler’s U.S. unit, Chrysler, grew its market share, reporting a 7.5% jump in sales. Toyota sales rose 11%, and Nissan sales rose 10%.

The Institute for Supply Management Index slipped to 55.3 in February , the lowest level since October 2003. Any reading over 50 means the sector is expanding,

Federal Chair Greenspan told the House Budget Committee the U.S. economy could suffer if Congress didn’t act to fix the federal government’s budget deficit soon.

Retail sales in stores open a year or more were 3.6% higher than last February.

Nonfarm U.S. jobs grew by 262,000 jobs last month, the most since October and the fourth-biggest gain in the past five years.

The unemployment rate jumped back up to 5.4%, where it had sat for much of the latter half of 2004.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Internet Security Systems (ISSX), JDS Uniphase (JDSU), KLA-Tencor (KLAC), LSI Logic (LSI), Marvel Tech (MRVL), Motorola (MOT), Novellus Systems (NVLS), Rambus Inc. (RMBS), RSA Security (RSAS), Texas Instruments (TXN).
  • TUESDAY: Beazer Homes (BZH), Computer Associates (CA), Nextel Communications (NXTL), Varian Semiconductor (VAR).
  • WEDNESDAY: chinadotcom (CHINA), Xilinx (XLNX).
  • THURSDAY:Coach Inc. (COH), Mylan Laboratories (MYLN),
  • FRIDAY: no likely market movers.

On the economic front we have potential U.S. market movers with:

  • MONDAY: none
  • TUESDAY: none
  • WEDNESDAY: Beige Book, EIA Petro Status.
  • THURSDAY: Jobless Claims, Money Supply.
  • FRIDAY: none

This Week’s Scans:

SOON TO BE UPDATED!

SETUPS

BREAKOUTS

BASES

SHORTS

This Week’s Word On Discipline:

“Right discipline consists, not in external compulsion, but in the habits of mind which lead spontaneously to desirable rather than undesirable activities.”
Bertrand Russell

DISCLAIMER:
Past Performance Is Not Indicative of Future Returns. All commentary provided
by The Growth Stock Report is for educational purposes only. The analysts and
employees or affiliates of The Growth Stock Report may hold positions in the
stocks or industries discussed here. This information is NOT a recommendation
or solicitation to buy or sell any securities. Your use of this and all information
contained in The Growth Stock Report is governed by the Terms and Conditions
of Use. Opinions expressed are our present opinions only. This material is based
upon information that we consider reliable, but we do not represent that it
is accurate or complete, and that it should be relied upon, as such.

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