Welcome to this week’s edition of The Growth Stock Report!
Market winds changed course for the week as buyers boosted the overall technical condition to their favor.
Our current position:
MARKET IN LIMBO
In this week’s edition you will find:
- Where We Are
- What Was Important About Last Week
- What We Are Watching For This Week
- A Word On Discipline
The following sections can now be found on our home site:
Where We Are:
Taking a look at the overall markets:
Thursday’s emotional lower open on the heels of terror attacks in London marked the lows for the week. Not even worse than expected employment figures could thwart upside momentum.
Strong markets reject negative news.
Small-caps led the charge with the Russell 2000 hitting new all time highs.
Firming the advance, Consumer Cyclicals were endorsed with heavy buying into technology issues. This is a change of pace from the past couple of months where money favored Consumer Staples.
Our conviction goes to where the technology names point us. The charts are looking good as critical levels are in play with the Nasdaq and Semiconductor Index facing potential breakouts.
It’s all about the breakout, but breakouts can lead to fakeouts. In order for us to raise the Green Flag we want to see well sponsored buying for new highs should they come.
This market continues to be a bullish environment for Energy, Homebuilders, and Real Estate. On a down note, these are not the sectors that usually lead cyclical moves up in equities.
We do continue to be encouraged by well bid Broker Dealers, but also want to see Banks shake their current trading range.
Two heavy points of evidence that keep weight on the Bears side of the scale are the contrarian indicators of Investors Intelligence and the CBOE Volatility Index. As mentioned in previous reports, extremes in these indexes more than often lead to corrections. Timing the corrections is not a mechanical operation, so we must keep it in perspective that the prospects of a significant broader move up in the major indexes is dimmed.
Regardless of indicators, price rules. Wherever the market takes us we’ll go. Our time frame for trading allows us to take advantage of opportunity and stay away from uncertainty.
Our portfolio has been behaving very nicely for us. We came into the week in a defensive stance, but are now looking to seize opportunity should it present itself.
The Dow Industrial Average ($INDU), +1.41%, is the weakest of the major indexes as it remains rangebound and tangled in its 20, 50, and 200-day moving averages.
The S&P 500 ($SPX) , +1.46%, and Nasdaq ($COMPQ), +2.70%, are back above their 20, 50, and 200-day moving averages, which are stacked in bullish form, with the 20 above the 50, and the 50 above the 200.
The leader of the major indexes is the Russell 2000 ($RUT), +2.97%, as it broke out to new highs.
Volume indications are now in the Bull’s favor with two days of accumulation a piece for the Dow and S&P 500, and three to the Nasdaq. One day of distribution was notched in for all three major indexes. It should also be recognized that Thursday’s accumulation was likely due to heavy trading in response to the London attacks.
New Highs on the major exchanges were robust, and an obvious sign of strength for this environment. New Lows remain quiet.
The Advance/Decline Line continues to trend in the Bulls favor.
Investors Intelligence remains bearish, with 53.9% Bulls and 21.4% Bears. With this contrarian indicator at extremes, the odds are we’ll see the Bulls burned somewhere. Where and when this might occur is not for us to speculate.
Key chart action for the week:
Charts courtesy of Stockcharts.com
Consumer Cyclicals ($CYC) have picked up steam and are now showing relative strength over Consumer Staples ($CMR).
The Semiconductor Index ($SOX) had a strong run to the upside and are poised to make new highs for the year.
Banks ($BKX) had a positive week, though remain in a seven week trading range.
Broker Dealers ($XBD) continued their charge higher.
Retail ($RLX) is poised to breakout to new highs.
Internet stocks ($IIX) were relatively quiet as they bounced off their 50-day moving average. We have been used to this group providing leadership, but so far it’s not stepping up.
Healthcare ($HCX) was in step with the greater market as it looks to make new highs.
Biotech ($BTK) had a monster move to the upside.
REIT’s ($DJR) hit another new high. This has been a Bear killer.
Homebuilders ($DJUSHB) continued their upward advance. Another Bear killer.
Transportation ($TRAN) continues to hold technical weakness. We don’t expect any major moves from the sector any time soon. Both Bull and Bear camps have been frustrated here.
Airlines ($XAL) are facing a key technical decision with almost a three year trend line in play. We believe the upside to have better odds, and potentially a longer-term cyclical move.
Defense ($DFX) is consolidating nicely and set for new highs.
Energy ($IXE) cruised to another new high. No signs of weakness yet.
Basis Materials ($A1BSC) is technically unstable, and one of the worst performers fort he year.
Utilities ($UTY) made it five weeks in a row of new highs.
The top 10 industry groups from the 6 month RS screen are:
- GROCERY STORES
- CONSUMER SERVICES
- RESIDENTIAL CONSTRUCTI
- OIL GAS DRILLING EXPLO
- OIL GAS REFINING MRKTN
- DEPARTMENT STORES
- SEMICONDUCTOR-BROAD LI
- TECHNICAL SERVICES
What Was Important About Last Week
- Homebuilders reported the following reports on orders: D.R. Horton (DHI), 20% rise to 14,980 home orders and a 28.6% gain in home order value to $4.13 bil. M.D.C. Holdings’ (MDC) 14.2% rise to 4,832. Comstock’s (CHCI) order revenue was up 97.7% to $51.6 mil. Pulte Homes (PHM) reported a 26% order increase to 13,581 houses.
- U.S. nonfarm payrolls were up 146,000 in June, lower than the 200,000 economists expected.
- The unemployment rate fell to 5%, its lowest since September 2001.
- The International Council of Shopping Centers and UBS said sales at 66 retail chains jumped 5.3% from a year ago for the best performance since May 2004.
- Job claims rose 7,000 to 319,000 as the 4-week average slid for third week in a row to a 4-month low of 320,500.
What We Are Watching For This Week:
Key earnings releases:
- MONDAY: Genentech, Inc. (DNA)
- TUESDAY: Ameritrade Holding Corp. (AMTD), Infosys Technologies LTD (INFY), PepsiCo (PEP)
- WEDNESDAY: Abbott Laboratories (ABT), Advanced Micro Devices (AMD), Apple Computer, Inc. (AAPL), Yum! Brands, Inc. (YUM)
- THURSDAY: Fairchild Semiconductor International, Inc. (FCS), Fifth Third Bancorp (FITB), Genzyme Corporation (GENZ), Marriott International (MAR), Southwest Airlines (LUV), UnitedHealth Group Inc. (UNH)
- FRIDAY: First Data (FDC), General Electric (GE)
On the economic front we have potential market movers with:
- MONDAY: none
- TUESDAY: none
- WEDNESDAY: Export Prices ex-ag., Import Prices ex-oil, Trade Balance, Treasury Budget
- THURSDAY: Core CPI, CPI, Initial Claims, Retail Sales, Retail Sales ex-auto
- FRIDAY: Business Inventories, Core PPI, NY Empire State Index, PPI, Capacity Utilization, Industrial Production, Mich Sentiment-Prel.
The Following Sections Are Now On Our Home Site:
This Week’s Word On Discipline:
“No evil propensity of the human heart is so powerful that it may not be subdued by discipline.” — Seneca
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