Barren and Lonely

It’s a bleak scene for the Growth Stock landscape.

All of the major indexes are trending below their 50 and 200-day SMA’s with a clear predominance of distribution. Very few, if any, candidates for upside leadership to be found.

Very little in the way of  rallies as lack of institutional follow through buying from last month’s lows promotes an environment of  caution. We’ll stay a Bear as long as this remains the case. Riskier appetites might consider shorting.

Potential wind changes could come  with third quarter earnings season, which could trigger heavier selling as well as a rally. A retest of lows might create capitulation to wash out weak hands and drain selling pressure. Perhaps, perhaps.

The Screen:

Only one company qualified for the strict earnings and technical criteria we scan for. And that alone pretty much zaps our appetite for buying quality earnings growers. It’s enough to starve a breakout bull.

This week’s screen produced only Walker & Dunlop Inc., WD, a Maryland-based commercial real estate lender.

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Chart is good: increased volume flow, accumulation up the right side of the base. However, that gap below 25 should be concerning, as most small gaps like that tend to get filled – at some point.

Strong fundamentals look good short term:

  • Quarterly Sales Growth of 34%, three years of increased sales.
  • Quarterly Earnings Growth of 56%, three years of increased earnings.
  • ROE of 17%

Risky money sets up prior to breakout.

Bear Nothing

It’s a seller’s market. 

No institutional follow through coupled with a lack of leaders gives no confidence for the bull. Gotta stick to what is, not what should be. Without this evidence of large fund sponsorship any rally is suspect.

Smart and nimble money is looking to score on the short side. Odds may favor, as they often have before, stocks already trending bellow their major MA’s. These are the weakest in a weak market. One might look at Linkedin LNKD for its two-step rally back to 50-day for an invite.

Nothing hit our Standard Screen this week, except Vanda Pharmaceuticals, Inc., VNDA. This would be a decent buy setup if it weren’t for the lack of broader market buying power.

VNDA is the only stock from our screen still above its 50-day MA. Aggressive money can go ahead and buy this maker of drugs that treat schizophrenia. The 13 price mark looks like a good stop for a pre-breakout buy here. Nearly 150%+ sales growth with an ROE of 70% make this a tasty bid for funds. Any turn around in the broader market could make it a new leader.

Homebulders, with the ITB fund, still look poised as another candidate here.

This week’s scan has the >50 MDA criteria removed because VNDA is the only one that came in above it. What remains is a collection of the beaten and broken.

This screen is based on:

  • EPS > 20% Quarterly
  • Sales > 20% Quarterly
  • ROE > 15%
  • Price > 200 SDMA
  • Price > 10
  • Average volume > 300,000
  • Market Cap > $300mil

Ticker Company Industry Country Chart
ABMD ABIOMED, Inc. Medical Appliances & Equipment USA PB
ADPT Adeptus Health Inc. Hospitals USA N
AHS AMN Healthcare Services Inc. Specialized Health Services USA PB
AVGO Avago Technologies Limited Semiconductor – Broad Line Singapore N
GILD Gilead Sciences Inc. Biotechnology USA N
LAD Lithia Motors Inc. Auto Dealerships USA N
MMS MAXIMUS, Inc. Business Services USA N
NHTC Natural Health Trends Corp. Personal Products USA N
NVO Novo Nordisk A/S Drug Manufacturers – Other Denmark N
PLNT Planet Fitness, Inc. Sporting Activities USA N
REGN Regeneron Pharmaceuticals, Inc. Biotechnology USA N
SCMP Sucampo Pharmaceuticals, Inc. Drug Manufacturers – Other USA PB
SKX Skechers USA Inc. Textile – Apparel Footwear & Accessories USA PB
SNN Smith & Nephew plc Medical Appliances & Equipment United Kingdom L-BASE
TREE LendingTree, Inc. Mortgage Investment USA N
UVE Universal Insurance Holdings Inc. Property & Casualty Insurance USA N
VC Visteon Corporation Auto Parts USA N
VNDA Vanda Pharmaceuticals, Inc. Biotechnology USA L-BASE
WBA Walgreens Boots Alliance, Inc. Drug Stores USA N
WD Walker & Dunlop, Inc. Mortgage Investment USA N

  • BASE = Base
  • L-BASE = Lower Base
  • PB = Pullback
  • NH = New High
  • N = Nada

Hangman

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Could be tomorrow, could be days, weeks and perhaps months before we can all recognize a discernible top in the broader market’s price action.

The steep sell off last week has the type of institutional grade abandonment that spreads fear like peanut butter over toast.

But for now, all we can really say is the market gave a predictable bounce then took a breather Monday. Chart looks a bit like a hanging man. We’ll gauge volume to see if the sellers come back in force, or if the Bull can muster the power to signal accumulation is in the works for fund managers this fall.

Our upside call on Oil last week couldn’t have been any more on point. No, we had no idea crude, and the USO fund, would bust a 10% move in a day. That’s three days of shorts covering here. Time to ring the cash register and see how it regroups.

We’re still watching the resilience in Homebuilders with the ITB fund. Not hard to see home buyers going out for loans if the Fed makes its first target rate hike in nine years. Yes, nine years it’s been…