Archive for June, 2010|Monthly archive page

Heavy Selling Confirms Bias

Another round of heavy, institutional grade selling accompanied the Nasdaq and S&P 500 to new lows Tuesday.

Our current Sell Bias has kept us on the watch for such events, as it becomes even more clear Bears are in the drivers seat.

With the Dow and Russell 2000 just shots away from joining the new yearly low club, it’s likely a matter of time until we see the majority of the market head along this path.

Friday’s employment data release holds potential for a strong market reaction, as usual.

We want to watch short positions in TEX, CUZ, SPN and CHS closely so as to not let any profits turn to losses.

More individual names will be discussed in our weekly report for paid subscribers.

Stay tuned,

Dan

thegrowthstockreport.com

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Sluggish Bear

Not much to take from Monday’s sluggish market.

We’re sticking with our Sell Bias as the major indexes continue to tread under key moving averages.

While we were bullish a week ago, the recent breakdown in leadership suggests new lows for the market may be at hand.

This is a traditionally slow time of year for the markets. Without clear conviction from buyers, it appears down is the path of least resistance.

Though given the tendency of Bear markets to reverse suddenly, we need to be alert to anything that might suggest a more sustainable rally than what we’ve already seen this month.

The semiconductors ETF (SMH), which is fighting to stay above its 200-day moving average, could be just the vehicle to lead broad market action higher.

Though without the support of retail (XRT) and financial (XLF), which are showing weakness below the key average, a rally opportunity is hard to envision.

The week’s main event may come Friday when employment data is due.

Stay tuned,

Dan

thegrowthstockreport.com

Bearish Callings

Clear Distribution, or institutional selling, turns us into Bears.

Going into Thursday we were on the cusp of shifting our Buyer’s Caution as key sectors continued to lose ground.

No time to wonder how or why things turned bad. It pays to be flexible in this business. That’s how we preserve capital.

In response to our shift in bias we’ve added CUZ, SPN and CHS to our short positions, which already included TEX.

Early in the week we saw warning signs from recent breakouts of top Growth Stocks, such as MELI, LULU, ULTA and DECK, to name a few, which failed to hold high ground.

Consumer Discretionary stocks (XLY) are leading the downside action as the ETF comes within a shade of a new low for the year. Meanwhile, the Consumer Staples (XLP) are showing relative strength, though the ETF is clearly trend-down under its 200-day moving average.

Elsewhere, it’s pretty much the same, with the exception of some drug stocks, like JNJ, MRK and BMY, which eked out gains Thursday.

Stay tuned,

Dan

thegrowthstockreport.com

Bulls Roll Over

Tuesday’s seller dominated action gives pause to the Bull, but it’s not enough to make us Bears.

While it was technically distribution for Big Board volume, its overall light volume didn’t make for a clear indication that institutions are in sell-mode.

But what’s concerning is the fact that recent breakouts from top-rated stocks showed deep pullbacks.

Unless stocks recently breaking out of techncial bases, like LULU, MELI and DECK can resume their uptrends, it won’t give us reason to buy others poised to do the same.

We’ll wait another session or two to have a better understanding of the true trend in growth stocks.

The fact that Retail (XRT) and finance (XLF) are struggling to hold their 200-day moving averages has been a concern, as mentioned in our latest Market Report.

Stay tuned,

Dan

thegrowthstockreport.com

 

Where Trends Are Formed

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We’re watching for signs of strength and weakness as the major indexes test key moving averages.

Two weeks of solid advances for the indexes from key technical levels has been backed up with a Follow Through Day of institutional buying, giving us reason to believe recent lows may stick. For this trend to continue, we also want to see sell-volume drop off to show less aggression from bears.

The fate of our Buyer’s Caution bias will ultimately be decided by the way the semiconductors (SMH), retail (XRT) and finance (XLF) sectors trend. The trio makes for key components of sustainable rallies. While the leading SMH sector gives encouragement as it trades above its 50-day moving average, the XRT gives us pause with a slightly negative week, down .5%, and the XLF remains a relative strength loser under its 200-day moving average.

A watchful eye on Europe should also be held, as the EUR/USD has served as a leading indicator for stocks over recent weeks. Sideways action in the currency over the last couple of days has been similar to what the broad market for U.S. stocks has done.

The market’s ability to rally on negative news tells a lot about its strength.

A return in Leadership is also encouraging as Apple Inc. (AAPL), up 8% for the week to an all-time high, is paving the way for others.

Stocks with top fundamentals listed as breakout candidates on our report have also been on fire:

Mercadolibre (MELI), a second tier Matrix stock of ours, has clocked new highs for the last two weeks when it broke out of its two-year long technical base.

Lulumon Athletica (LULU), a first tier Matrix selection, broke out of a two-and-a-half-year base.

Akamai Technologies (AKAM), has been on for new highs for three weeks since breaking lose from its year-and-a-half long base. The company doesn’t have strong enough fundamentals to qualify for our Matrix, though has been listed in this report for weeks as an ‘A’ grade stock.

Chipotle Mexican Grill (CMG), also hit a new high this week. As an ‘A’ grade stock it’s held a volatile, upward trend toward its recent all-time high.

Deckers Outdoor (DECK), another ‘A’ stock, has also hit a new all-time high since breaking out of its year-and-a-half long base two weeks ago.

Aruba Networks (ARUN) and Ulta Salon (ULTA) also join the list after being listed here with the others last week.

There are a number of other growth stocks poised to do the same, as long as the market remains buyer friendly.

Technically Speaking

Major Indexes – Weekly Price Action

Major Indexes – Weekly Volume Action

Primary Indexes (ETFs) – Weekly Price Action

Sectors (ETFs) – Weekly Price Action

News To Watch This Week

Earnings:

  • MONDAY – CKE Restaurants (CKR), Palm, Inc. (PALM)
  • TUESDAY – Adobe Systems (ADBE), Jabil Circuit, Inc. (JBL)
  • WEDNESDAY – Bed Bath & Beyond Inc. (BBBY), CarMax, Inc (KMX), Herman Miller (MLHR), Nike (NKE)
  • THURSDAY – ConAgra Foods (CAG), Darden Restaurants (DRI), Lennar Corporation (LEN), Oracle (ORCL), Research In Motion Limited (RIMM)
  • FRIDAY – KB Home (KBH)

Economic:

  • MONDAY – none
  • TUESDAY – Existing Home Sales , FHFA Housing Price Index
  • WEDNESDAY – New Home Sales , Crude Inventories, FOMC Rate Decision
  • THURSDAY – Durable Orders , Initial Claims , Continuing Claims
  • FRIDAY – GDP Third Estimate, U Michigan Sentiment


The Word On The Street

  • “We’re in the area that I call the “dead zone.” I’ve been here before, and it’s not easy to write in the dead zone. The dead zone tends to appear after a period of dramatic and clearly-defined action. After such periods the market will often act like an exhausted prize fighter who has been knocked down to the canvas. He gets to his feet, but he is unsteady on his feet, and he’s playing for time — until his head clears. He’s fending off the other fighter as best he can, and he’s depending on his experience. Will he make it to the end of the round? But what kind of shape is he in for the next round? Richard Russell of the Dow Theory Letters newsletter, as reported by benzinga.com

Cautious Buyers

We’re going with a Buyer’s Caution bias after Tuesday’s Follow Through Day (FTD.)

The FTD indication comes at least after four days after a potential market bottom, with one of the major indexes rallying at least 1.7% on volume greater than the day before.

To some, this may seem like an insignificant event in the randomness of week-to-week market activity. But what it means is institutional-grade buyers have stepped up to endorse the long side of the market.

The FTD has been most famously identified by William O’Neil of Investors Business Daily, whose research has connected the event to every major rally in stocks over the past century or so. But it should be noted that not every FTD leads to a market bottom.

Think of the market as a plane and volume its thrust. Over the past several weeks the market’s downfall has occurred on heavy, or institutional, sell-volume. To stay bullish, we want to see the volume bias shift to buyers, with up days occurring on volume greater than the day before for what are known as Accumulation Days.

Thursday’s Accumulation Day on the S&P 500 is a step in the right direction. As the major averages now test ground above their 200-day moving averages we also want to see the sell-volume drop off.

We’re also encouraged by a number of Growth Stocks breaking out and sticking:

Mercadolibre (MELI), a second tier Matrix stock of ours, has clocked new highs for the last two weeks when it broke out of its two-year long technical base.

Lulumon Athletica (LULU), a first tier Matrix selection, broke out of a two-and-a-half-year base.

Akamai Technologies (AKAM), has been on for new highs for three weeks since breaking lose from its year-and-a-half long base. The company doesn’t have strong enough fundamentals to qualify for our Matrix, though has been listed in this report for weeks as an ‘A’ grade stock.

Chipotle Mexican Grill (CMG)also hit a new high this week. As an ‘A’ grade stock it’s held a volatile, upward trend toward its recent all-time high.

Deckers Outdoor (DECK), another ‘A’ stock, has also hit a new all-time high since breaking out of its year-and-a-half long base two weeks ago.

Aruba Networks (ARUN)and Ulta Salon (ULTA) also join the list after being listed here with the others last week.

The success of the above stocks will be telling of other Growth Stocks poised for breakouts. Subscribe to The Growth Stock Report for individual selections.

Best,

Dan

thegrowthstockreport.com

Not Quite A Full Bull

Not much to go on as Wednesday’s light-volume action made for a mixed bag of stock action.

With Tuesday’s Follow Through Day notched in we’ve changed our market bias to Buyer’s Caution.

The major indexes need to show us they can hold ground above their 200-day moving averages before we become more aggressive buyers. The technical resistance obstacles of their 50-day moving averages are the next step up.

Where strong volume from the traditional bull market leadership of Semiconductors (SMH) yesterday bodes well for the market’s potential, heavy selling from the similar key sector of Retail (XRT) today is cautionary. Bullish confirmation from Finance (XLF), which remains under its 200-day moving average, is also desired before we become more bullish.

In Growth Stock action, we’re pleased to see a number of issues holding ground after breaking out of technical bases: Mercadolibre (MELI), Akamai Technologies (AKAM) Chipotle Mexican Grill (CMG) and Deckers Outdoor (DECK.)

Lulumon Athletica (LULU) and Ulta Salon Cosmetics & Fragrances (ULTA) are the most recent members to join the breakout club.

A Follow Through Day

Well hot dog, we got our Follow Through Day.

Sharp rallies accompanied by heavy buy-volume across the major indexes tells us institutions are showing some interest in the long side of this market.

Some of our friends in the media suggest it’s all due to less fear over European concerns, but to us it’s just good old fashioned buying.

This type of follow through  off market lows has been evident in every major bull move the market move. But not all follow through has led to sustained rallies.

As the major averages poke above their 40-week moving averages we want to see them gain traction.

It’s important quality leadership step up here. While the not so bullish indication of Oil Services leadership led Tuesday’s action with a 5% rally, it’s more encouraging that we got some traditional leaders of sustainable rallies from Semiconductors (SMH), up 4.5%, Technology (IGN), up nearly 3% and Transportation (IYT), also up nearly 3%.

Further confirmation in coming sessions from other key sectors, like Retail (XRT), up more than 1%, and Finance (XLF), up more than 2%, would be positive signs for the broader market. We want to measure this action weekly as one day weighs little in the bigger picture.

And as Growth Stock buyers, we want to see recent breakouts stick from top stocks such as Mercadolibre (MELI), Chipotle Mexican Grill (CMG), Akamai Technologies (AKAM) and Deckers Outdoor Corp. (DECK.)

We have a number of other top stocks poised to follow these leaders. Much of their success will be tied to the number of their peers that can continue to chug higher.

Best,

Dan

thegrowthstockreport.com

Sellers Still Strong

Heavy sell-volume in the S&P 500 as it flirted with testing its 200-day moving average doesn’t bode well for the Bulls.

We’re staying Bears.

While we’ve nibbled a bit on the rally potential of a handful of top Growth Stocks, (LULU), (MELI) and (ULTA), without the confirmation of the broader market it’s all high-risk.

In our weekly commentary posted this morning we made it a point that we wouldn’t get too cerebral as the market struggles to find a trend.

It’s going to break one way or another. Best thing to do is wait to see how the week evolves before jumping to any conclusions.

It’s summer. Try to enjoy yourselves…

Best,

Dan

thegrowthstockreport.com

Being Bearish Ain’t Easy

It’s hard to be a short-term Bear with the nice bounce off the lows we had Thursday.

But before jumping on the Bull bandwagon we need to be patient and wait for confirmation of a Follow Through Day (FTD.)

An FTD, which has accompanied every major bull-leg in the stock market, comes via at least a 1.7% rally on one of the major indexes on volume greater than the day before.

This show of institutional buying power would let us know the big boys are supporting these prices. We begin looking four days after a potential low, which in this case was made Tuesday, so as not to confuse it with nervous shorts buying to cover their positions.

There were few decliners in Thursday’s action, with Energy stocks leading the action higher.

Any sustainable rally will likely have Leaders such as Tech, Finance and Retail behind it, so their progress will be watched closely in the coming sessions.

On the Growth Stock front, a high-volume base breakout from Mercadolibre (MELI), a Latin online payments company, will also be watched as an indicator of success for others.

Breakouts have suffered in this market. But all it takes is a few to lead the way for more. Otherwise, we’re looking for shorting opportunities with the event of a failed broader market rally.