Observing, Not Thinking

Posted onAuthorGSRTrades

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

Traders,

The market continued its bounce last week, though we’ve yet to gather any real evidence that it will mature into something sustainable.

Our current position:

MARKET VULNERABLE TO FURTHER SELLING!

In this week’s edition you will find:

Where We Are:

Taking a look at the overall markets:

Maybe we consolidate to suck in buyers so it can all fall apart again, maybe we turn down again, maybe we rocket higher. The market does what it wants, but what we do is use a cautious and tested approach, not just randomly guess.

Employment data was better than expected, but when it comes to putting our money in the market this doesn’t really mean anything to us. We are not economists, and if anything, we have learned that economists more than often get it wrong. We also believe the market to be a forward looking vehicle that will turn before the economy.

There are many ways to make money in the market, but to us successful trading is about observing, not thinking. Our charts don’t lie.

Technically speaking:

The Dow Industrial Average ($INDU) is finding resistance at its 200-day moving average, the S&P 500 ($SPX) is finding resistance at its 50-day moving average as it trades above its 200-day average, and the Nasdaq ($COMPQ) remains convincingly below its 200-day and 50-day averages though has pierced its downward channel to the upside.

The 200 and 50-day moving averages are important bench marks closely watched by institutional money. It is safe to say the major indexes are in a state of bearishness with much to prove in order to remove that label.

Volume indications haven’t given us any strong signals of late, though we booked some accumulation for the week. We wanted a Follow Through Day to give us better signal of institutional interest for this market.

Consumer Staples (CMR) continue to solidify their dominance over Cyclicals (CYC), which means if this market can gain upside momentum it is a more attractive place to put money.

The U.S. Dollar Index ($DCX) continues to remain below a long-term trend line while The Gold Miners Index ($XAU) is attempting to reverse it’s sell-off.

Key chart action:


Charts courtesy of Stockcharts.com.

The Semiconductor Index ($SOX) has been sluggish but has put in a reversal on a key trend-line. We’d prefer the semis to take charge and establish some leadership to be more confident of an overall market rally, but will consider this index in a state of reversal until proven otherwise. If the low made two weeks ago is taken out we’ll take this as a strong sell signal.

Banks ($BKX) looked like they were going to firm up going into last week but fell apart. Given the sector’s dominance in market-cap weighting we perceive failure to close strong as a sign of a tired market.


Healthcare ($HCX) and Drugs ($DRG) continue to look good as they notched in 10-month highs.

Biotech (BTK) remains another area with potential as the index put in a convincing move.

The Airline Index (XAL) is testing a long-term trend line and is posing an opportunity for aggressive money. Remember to always obey your stop loss – which in this case is below last week’s low.


Energy ($IXE) continues to consolidate. The way it usually goes is when the media gets tired of talking about energy prices we’ll see the index slowly creep back up, then as new highs are made and the “talking heads” start yapping about it again they will suck in the last buyers before another pullback comes.


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

  1. DEPARTMENT STORES
  2. RESIDENTIAL CONSTRUCTI
  3. GROCERY STORES
  4. HEALTH CARE PLANS
  5. INTERNET INFO PROVIDER
  6. HOSPITALS
  7. CONSUMER SERVICES
  8. DATA STORAGE DEVICES
  9. LONG-TERM CARE FACILIT
  10. SEMICONDUCTOR-SPECIALI

New Highs & Lows: NYSE Highs took the edge over the Lows for the first time in three weeks, as the Nasdaq Lows held their reign over new Hows. No indication of anything here.

What We Like:

We continue to favor energy. Gauging ideal points to enter the sector while in pullback mode is NOT our forte. We buy high here. So until new buy points can be determined we will just monitor our positions. (See below.)

Healthcare and Drugs remain strong. We have our eye on names from these groups but won’t do a thing until proper buy points become clear.

Cyclicals (CYC) are gathering strength. Think GROCERY STORES and CONSUMER SERVICES.

Action from our open positions:

Oil & Gas company Statoil ASA STO is looking great as it forms a new base. Original Buy Point = 15.81.


Oil & Gas company XTO Energy XTO continues to pull back on lighter volume. We’re still alive here. Original Buy Point = 27.42.

Health company LCA Vision (LCAV), which develops and operates fixed-site laser vision-correction centers under the brand name LasikPlus, is consolidating in an orderly and healthy manner. Original Buy Point = 36.5.

What Was Important About Last Week:

STOCKS:

  • Kirk Kerkorian, billionaire owner of MGM Mirage, announced that he wanted to buy up to 28 million shares of GM (GM) at $31 a share.
  • IBM (IBM) plans to cut between 10,000 and 13,000 jobs world-wide.
  • Intel (INTC) CEO Paul Otellini said he expected the company to achieve double-digit revenue growth this year with strong demand for personal computers.

ECONOMY:

  • The Federal Reserve raised its target for the federal funds rate by 25 bps to 3%. This is the eighth consecutive hike which brings the rate to its highest level since October 2001.
  • The ISM index dropped 1.9 points to 53.3 for the month of April, the 9th drop in 11 weeks and the lowest since July ’03. Economists were looking for little change in the number. Orders and jobs also fell to near-2-year lows, giving evidence the economy is slowing.
  • The Treasury Department said it was considering issuing new 30-year bonds after a three years pause.
  • Nonfarm payrolls jobs grew 274,000 in April, this is above a consensus expectation of a 170,000 gain.
  • The labor force grew by 605,000 to contribute to the unemployment rate which remained at 5.2%. This is equal to its post-recession low.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Alcan Inc. (AL).
  • TUESDAY: Hansen Natural (HANS), The May Department Stores Company (MAY).
  • WEDNESDAY: Walt Disney (DIS).
  • THURSDAY: American Eagle Outfitters Inc (AEOS), Kohl’s (KSS), Target Corporation (TGT), Urban Outfitters (URBN), Wal-Mart Stores Inc. (WMT).
  • FRIDAY: Tiffany & Co. (TIF).

  • On the economic front we have potential market movers with:

This Week’s Scans:

READY TO BREAK OUT: ADEX, CEDC, ISSC, PHLY, TIE, TRMB, UNH.

RECENT BREAKOUTS

BASES

This Week’s Word On Discipline:

“First ask yourself what you will be, then do what you have to.” — Epictetus

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.