Back To Base

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The Dow Industrial Index and S&P 500 appear to be having second thoughts about continuing their breakouts as the Nasdaq entices buyers by holding high.

We might expect to see some heavy selling at these levels, though to remain bulls we want to see sell volume dry up in the coming sessions. If not, we’ll anticipate further slipping, perhaps to the logical support levels of the 50-day moving averages. 

On a bullish note, this market is a bit dull. The Volatility Index ($VIX) is holding steady. Fed news over QE continuation is old now. No major earnings shakeups. Just a bit of doubt. There’s always doubt. Never short a dull market.

Words And Tricks

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Mere words may move markets, but it’s the underlying patterns that buyers and sellers groove into the market every day, week, month and year that rule our analysis. 

Tuesday’s mixed bag of small cap breakouts and S&P 500 pullback doesn’t give us much to go on. Friday’s heavy selling put a dent in the upward trend. We’re waiting to see if any more heavy selling comes in to suggest more that this light pullback is in store. 

Acrophobia

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Heavy, institutional grade selling hit the exchanges Friday, making the major indexes look a bit scared in their new high territory. One day means little. But traders take note, it’s these kind of high volume sell days at highs that are known to signify trend changes. 

We’ve been in Buyer Caution mode, and we’ll stay that way until we see some more meaningful evidence to shift our sites further up, or back down.  A pullback of some sort is more than likely here.

Stud Screen

Future top earners are screened for as we look for 30% growth or more in earnings over the next five years, weeding out false promises as we also screen for those with current sales showing more than 30% growth, and further drilling it down to only solidly profitable companies with return on equity of 15% or better. This is the Stud Screen:

Ticker Company Sector Industry Country
ATHL Athlon Energy Inc. Basic Materials Independent Oil & Gas USA
BBSI Barrett Business Services Inc. Services Staffing & Outsourcing Services USA
DDC Dominion Diamond Corporation Basic Materials Nonmetallic Mineral Mining Canada
GEOS Geospace Technologies Corporation Technology Scientific & Technical Instruments USA
GGAL Grupo Financiero Galicia S.A. Financial Foreign Regional Banks Argentina
GMK Gruma S.A.B. de CV Consumer Goods Processed & Packaged Goods Mexico
HCLP Hi-Crush Partners LP Basic Materials Industrial Metals & Minerals USA
MDC MDC Holdings Inc. Industrial Goods Residential Construction USA
PGTI PGT, Inc. Industrial Goods General Building Materials USA
RYL Ryland Group Inc. Industrial Goods Residential Construction USA
TIVO TiVo Inc. Services CATV Systems USA
WETF WisdomTree Investments, Inc. Financial Asset Management USA
WGO Winnebago Industries Inc. Consumer Goods Recreational Vehicles USA
YY YY Inc. Technology Internet Information Providers China

The Bull Knocks

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We’d be foolish to bet against new highs being made in the Dow and S&P 500 in the coming sessions.

We’re here at the door once again. Markets usually don’t just turn direction without making a statement or two. While yesterday’s emotional open faded, and appeared to take some of the punch out the charge, it’s unlikely to deter this path of new highs.  

Top EPS and RS Screen

Here’s a look at the market’s top EPS and RS stocks, meeting our requirements for the top 20% of each category as well as basic price and market cap standards:

Symbol Company Name Price
ADVS Advent Software Inc 30.19
AFOP Alliance Fiber Optic 37.38
AMP Ameriprise Financial Inc 90.8
ANIK Anika Therapeutics Inc 23.96
ATK Alliant Techsystems Inc 97
AVG A V G Technologies N.V. 23.25
BLMN Bloomin’ Brands Inc 23.57
BLOX Infoblox Inc 44.49
CRZO Carrizo Oil & Gas Inc 35.36
CSTE CaesarStone Sdot-Yam Ltd 41.28
CTRP Ctrip.Com Intl Ltd Adr 48.46
DRQ Dril Quip Inc 112.22
EGOV N I C Inc 21.15
ENV Envestnet Inc 30.21
EOG E O G Resources Inc 166.44
EPL E P L Oil & Gas Inc 35.02
FB Facebook Inc Cl A 44.31
FLTX Fleetmatics Group Plc 45.78
FNSR Finisar Corporation 23.3
GMCR Green Mtn Coffee Roastrs 84.29
GNRC Generac Hldgs Inc 41.65
GWRE Guidewire Software Inc 46.77
HBI Hanesbrands Inc 62
ICON Iconix Brand Group Inc 33.56
KFY Korn Ferry International 21.18
KORS Michael Kors Hldgs Ltd 74.03
LL Lumber Liquidators Hldgs 107.43
LNKD Linkedin Corp Class A 249.59
LZB La-Z-Boy Inc 22.5
MDSO Medidata Solutions Inc 99.13
MHK Mohawk Industries Inc 127.69
NSM Nationstar Mtg Hldgs Inc 54.03
OCN Ocwen Financial Corp 55.29
PRLB Proto Labs Inc 72.26
PRU Prudential Financial Inc 79.69
PXD Pioneer Natural Resource 184.83
QCOR Questcor Pharmaceuticals 63.07
QIHU Qihoo 360 Technology Ads 87.86
RGR Sturm Ruger & Co Inc 59.47
RKT Rock Tenn Co Cl A 118.67
SFG Stancorp Financial Group 54.96
SFUN Soufun Hldgs Ltd Ads A 45.41
SKM S K Telecom Co Ltd Ads 22.5
SLM S L M Corp 24.77
SPRD Spreadtrum Comm Inc Ads 30.29
SYNA Synaptics Inc 41.24
TM Toyota Motor Corp Adr 126.8
TNGO Tangoe Inc 22.93
UA Under Armour Inc Cl A 78.5
VC Visteon Corporation 73.26
WGO Winnebago Industries Inc 22.09
YY YY Inc Ads 45.96

Lower Base Watch

This screen helps identify the beaten down winners that appear to be catching a breath: Sales and Earnings +30% quarter over quarter, return on equity above 15%, above 50-day moving average and below 200-day moving average.

Ticker Company Sector Industry Country
CRUS Cirrus Logic Inc. Technology Semiconductor – Specialized USA
GEOS Geospace Technologies Corporation Technology Scientific & Technical Instruments USA
GHL Greenhill & Co., Inc. Financial Investment Brokerage – Regional USA
LPX Louisiana-Pacific Corp. Services Building Materials Wholesale USA
WAC Walter Investment Management Corp. Financial Mortgage Investment USA

It’s a short list in this bullish environment. Look for solid accumulation in a potential right side of base to show institutional interest. 

Rock Steady

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Solid look to this Nasdaq breakout. Take it all in, as a charge to new highs on a major index isn’t an everyday phenom.   

Smooth sailing with multiple accumulation days with no heavy selling. The Volatility Index ($VIX) also has room to drift lower into complacency.  But this is just the technical picture. 

We’re not technical purists. Rather, we use the analysis as we would narrative for a story. There’s always a boogie man waiting to come in and wreck the scene, whether it be an earnings shake up, global catastrophe or one too many funds deciding it’s time to cash in.

There’s loads of quality companies with well bid stocks out there that we can take advantage of in this environment. 

Stay tuned.