Welcome to this week’s edition of The Growth Stock Report!
The markets tend to play havoc on the emotions of most speculators, which is why we refuse to be sucked into the “game”.
Contrasting opinions of “dork analysts” and “talking-head goons” will drive you nuts unless you are using a clear strategy of your own.
Never let others, or even us, sway what you do. We feel this blog is best used for those who do their own homework and wish to collaborate or cross-check their findings with another.
While we make money in the market and feel our research is beneficial, it should be understood that experience carries a lot of weight in having long-term success. It is never wise to let another make important decisions for you.
“Give a man a fish and he will eat for a day, teach him to fish and he will eat for a lifetime.” — Chinese Proverb
Our current position:
MARKET VULNERABLE TO FURTHER SELLING!
In this week’s edition you will find:
- Where We Are
- What We Like
- What Was Important About Last Week
- What We Are Watching For This Week
- This Week’s Scans
- A Word On Discipline
Taking a look at the overall markets:
We’ve seen countless times when the news gets people excited and things set up technically but only to fall apart. Right now tech is demonstrating strength, and while we always want to see leadership from this sector, we also know that it can lead people into thinking things are better than they are.
We have seen little to get excited about in the markets. There is no leadership and no solid evidence of institutional support.
Definitions of what makes a bull or bear market vary from trading desk to trading desk, so without complicating things we see markets as either good or bad. This is a bad market and we are currently in the hunt for shorts.
Shorting is a difficult strategy which requires the utmost patience in timing correctly. Market tops can take months to play out, and identifying just the right stocks and places to execute these trades is not for amateurs.
The Dow Industrial Average ($INDU), -1.98%, and S&P 500 ($SPX), -1.48%, lost ground for the week as the Nasdaq ($COMPQ), +0.48%, made a modest gain.
All three major indexes are below their 50-day moving averages, with the Nasdaq showing more bearishness as its 50-day average has now moved below its 200-day average for a “black cross”.
As we gauge whether or not the recent bounce will fall apart or pick up momentum, Volume indications say no. The Dow and S&P 500 were hit with three days of distribution apiece for the week, and while the Nasdaq did put in two days of accumulation, it’s not enough for us to put our bull hats on.
We wanted a Follow Through Day to give us better signal of institutional interest for this market.
Leadership is nowhere to be found.
Key chart action:
Charts courtesy of Stockcharts.com.
The U.S. Dollar Index ($DCX) busted out of a long-term trendline for a 7-month high, while The Gold Miners Index ($XAU) fell to almost a 1-year low.
The Semiconductor Index ($SOX) looked good for the week, but keep in mind that looks may be deceiving. We see the 4/29 low on the index as pivotal, and if taken out will be a very strong bearish signal.
Banks ($BKX) couldn’t hold it together, and are now below their 20-day average. Not a good sign.
Healthcare ($HCX) and Drugs ($DRG) lost a little ground for the week. We’ve been positive on these sectors, and want to see consolidation with selling pressure dry up to feel better about it.
Biotech (BTK) shot higher for the week before selling off sharply into the close. Just a hunch, but we could see new money put to work here in the weeks to come.
Energy ($IXE) was whacked for the week as the price of crude dropped below the psychological $50 a barrel.
The top 10 industry groups from the 6 month RS screen are:
- DEPARTMENT STORES
- GROCERY STORES
- CONSUMER SERVICES
- RESIDENTIAL CONSTRUCTI
- LONG-TERM CARE FACILIT
- DATA STORAGE DEVICES
- CATV SYSTEMS
- SEMICONDUCTOR EQUIP MA
New Highs & Lows: Lows continue their edge over the Highs on the NYSE and Nasdaq exchanges.
What We Like:
We are stalking shorting opportunities.
We perceive shorting as extremely aggressive, and don’t recommend it to anyone – but if you must, we have outlined our strategy on our home site.
Despite not seeing the market in good enough shape to buy, we are looking at these areas for potential leadership should a new upsurge emerge:
Healthcare and Drugs have behaved well against a weak market and is poised for more upside. As mentioned earlier it is not technically primed for a breakout just yet. Biotech is also behaving nicely.
This may very well be the final shoe to drop, but Cyclicals (CYC) continue to show relative strength. Think GROCERY STORES and CONSUMER SERVICES. Again, we do not commit money unless we get the signal. We are nowhere near ready to buy here.
Aggressive money may be played in the airlines. It is only in specific situations that we try to pick a bottom, and when doing so ALWAYS use very tight technical stops. This is not a place to focus a significant amount of portfolio money.
The Airline Index (XAL) sold off for the week, but did not take out its pivotal low made 43.27. The news for this sector was just horrible (see What Was Important About Last Week), which makes us think there could be a chance here. We love nothing more than buying when things are at their worst. For a technical trigger, look to buy above the 5/5 high.
Airline stocks with relatively decent fundamentals include RYANAIR HOLDINGS (RYAAY) and SOUTHWEST AIRLINES, (LUV).
Action from our open positions:
As we say goodbye to energy and wait for the next opportunity, we’re happy to have made the best of things while we had it. We took our 20% profits, then got out before experiencing any losses. Not exactly what we wanted, but who are we to argue?
Oil & Gas company Statoil ASA STO bit with the rest of the oil sector. We’re out of it. Original Buy Point = 15.81.
Oil & Gas company XTO Energy XTO was also whacked. Goodbye. 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, continues to consolidate to our liking. Original Buy Point = 36.5.
- Dell (DELL) , the world’s biggest computer maker, reported earnings of 37 cents a share for the first quarter. This is up 28% from a year ago, and in line with Wall Street forecasts. Looking forward to the second quarter, Dell said it expected to earn between 37 and 39 cents a share, with the average analyst expectation of 38 cents a share.
- Wal-Mart (WMT), the world’s biggest retailer, announced fiscal first quarter profits rose to $2.46 billion, up 14% from a year ago. This is short of Wall Street forecasts. The company also warned that its second-quarter earnings would also disappoint.
- Cisco’s (CSCO) earnings rose 21% to 23 cents a share for the third-quarter, which was a penny above estimates. Earnings and revenue growth has slowed for the last 3 quarters.
- Morgan Stanley (MWD) CEO Philip Purcell said that Q2 results would miss projections.
- Walt Disney (DIS) reported profits for its fiscal second quarter up 30% from a year ago, slightly beating Wall Street forecasts.
- Toyota (TM), the world’s No. 2 auto maker, announced its revenue rose 7.3% in its fiscal year ending in March to $175 billion, a new record. Annual profit also set a record, rising slightly to about $11 billion.
- Delta Air Lines (DAL), the No. 3 U.S. airline, said it expected to report a “substantial” loss in the remaining nine months of the year, and also warned it might not have enough cash to cover all its obligations for the year. The company reported a $1.1 billion loss for the first three months of the year and is feared to go bankrupt.
- United Airlines (UAL), reported it needed to unload its $9.8 billion in pension obligations. This would be the biggest corporate pension default in history.
- United Parcel Service (UPS), the world’s largest package delivery service , said U.S. volume growth for the second-quarter is “well ahead” of forecasts.
- The U.S. trade deficit fell 9.2% in March to $54.99 billion. This is the biggest drop in three years.
- The Dollar hit a 7-month high against the euro as it continued on the heels of the trade data.
- Retail sales rose 1.4% in April vs. A consensus forecast +0.7% for the largest one-month gain since September 2004.
- Worries about hedge fund losses tied to the debt of General Motors circulated the world markets.
- The University of Michigan’s consumer sentiment report for early May fell more than analysts expected.
- The 10-year T-yield fell 5 basis points to 4.12%, the lowest since Feb. 15. Yield spreads between short- and long-end maturities have hit a 4-year low to suggests a economic slow down.
- Crude oil fell to a low of $47.75 before closing up at $48.67 a barrel.
- Business Inventories rose 0.4% for March which is less than the 0.8% rise analysts were expecting.
Key earnings releases:
- MONDAY: Agilent Technologies Inc. (A), Goldcorp (GG), Lowe’s Companies (LOW),
- TUESDAY: Abercrombie & Fitch Co. (ANF), Applied Materials (AMAT), Deere & Company (DE), Hewlett-Packard (HPQ), Home Depot Inc (HD), JCPenney (JCP), Staples, Inc. (SPLS)
- WEDNESDAY: BEA Systems (BEAS), Brocade Communications Systems, Inc. (BRCD)
- THURSDAY: Gap Inc. (GPS), Marvell Semiconductor, Inc (MRVL),
- FRIDAY: none
On the economic front we have potential market movers with:
- MONDAY: NY Empire State Index
- TUESDAY: Building Permits, Core PPI, Housing Starts, PPI, Capacity Utilization, Industrial Production
- WEDNESDAY: Core CPI, CPI,
- THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed
- FRIDAY: none
This Week’s Scans:
This Week’s Word On Discipline:
” Not to have control over the senses is like sailing in a rudderless ship, bound to break to pieces on coming in contact with the very first rock. ” — Gandhi
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