One of the requirements for any sustainable uptrend is leadership among growth stocks. When the market bottomed in March 2009, it became very clear (eventually) which stocks where going to lead; just as in every bull market certain names will assert themselves.
Not all of the leading stocks moved immediately, but through 2009-10 these growth names quickly were identified by funds and institutions as "go to" issues. All of these stocks had accelerating sales and earnings growth; coupled with high ROE and pre-tax margins. But, also important, these names were very liquid. Liquidity is the key for almost all institutional investors. I see many smart people identify great looking charts and many have terrific sales and earnings growth. But as the end of the day, if they aren't trading at minimum $75MM per day they will have a hard time attracting institutional investors.
What is my point? The "Big 10" names of the last Bull Market are on the ropes.
AAPL AMZN BIDU CMG DECK GMCR ISRG LULU NFLX PCLN
For the exception of ISRG, all are under either the 50 DMA, 200 DMA or both. This is a sign that institutions that hoarded these names are selling and in some cases with both hands (i.e. NFLX and GMCR). This is significant because for the first time these stocks are loosing some support and experiencing severe distribution. In some cases, these growth names are now being mentioned as value opportunities.
Stats have indicated maybe one out of seven or eight prior leaders will go on to lead in the next bull cycle. So maybe ISRG or AAPL or one of the others can base and then resume to new highs. But, chances are these stocks are done in terms of being leaders. It doesn't mean that they aren't great companies and won't be leaders in their respected markets. But price progression is based on sales and earnings growth. Which is why institutions have ridden these horses and now are on to the next new leaders.
What will lead the next bull market? Market corrections are the time for these new leaders to begin to assert themselves as they outperform the general market. Identifying stocks with high relative strength during intermediate pullbacks and bear markets is the key to hopefully landing one of the new leaders coming out of the blocks. Institutions begin to build their positions which leaves the elephant footprints for us to follow.
The bottom line is the market is either in an intermediate pullback from an prior uptrend or we are beginning the 3rd leg down of a bear market. Time will tell us but the fact the prior leaders are coming unglued and there is no sign of new leadership tells me cash is best.
Saturday, November 19, 2011
Sunday, February 6, 2011
FEBUARY 6, 2011
Despite seeing some Distribution Days in late January, the market has remained very strong. Most of the leading stocks have held their 50 Day Moving Average (DMA) and have went on to make new highs. Strong earnings have propelled some of the sluggish leaders into all time highs (examples: BIDU & NFLX) but have put them at unsafe buy points.
The indexes have acted especially strong as the Nasdaq is only 3% away from the 2007 highs. The S&P 500 has traded above its 50DMA for over a 100 days now. This is only the 6th time in the last 30 years this has happened. In 2006 it traded 150 days above and in 1995 it went for 250 days. So clearly this market is strong and could easily grind higher.
To this point, Egypt has proved to be a non-factor in the market. The market has a way of discounting what is not relevant which makes it important to tune out much of the daily news. The 2009-2010 leaders continue to act strong with the likes of AAPL, AMZN, PCLN, CMG, OPEN, ARMH, LULU, BIDU, and NFLX all near all time highs.
The big change in market leadership has been all the Oil & Gas, Energy and Equipment Companies that have exploded on the seen. Stocks like NOV, CAT, DE, and HAL have participated well and there is a clear sign that institutions are rotating into some of these stocks. These are typically not the type of stocks that growth investors are looking to buy.
Retail stocks look strong with stocks like LULU and UA breaking out to new highs. As well, discount broker stocks are showing up with TROW, AMTD and SCHW looking strong. It would seem logical that sales and earnings will increase as the retail investors starts to feel better about stocks and wanting more exposure. They are typically the last piece to the puzzle and late as the market has now doubled off the March 2009 bottom. Regardless, it is bullish to see financial stocks participate.
With all this said, there is some caution that needs to be observed. We are now approaching 24 months on this major uptrend from the 2009 lows. Most bull runs average 24 months before some type of intermediate pull back happens. This is just an average so we could clearly move higher into the spring. Distribution Days are at elevated levels which is a yellow flag to watch. Distribution Days are higher volume down days that indicate institutional investors are lightening up on stocks. Typically when you get to 6 of these Distribution Days the market is in a corrective phase and it is time to be in cash. The Nasdaq currently has 4 Distribution Days.
The indexes have acted especially strong as the Nasdaq is only 3% away from the 2007 highs. The S&P 500 has traded above its 50DMA for over a 100 days now. This is only the 6th time in the last 30 years this has happened. In 2006 it traded 150 days above and in 1995 it went for 250 days. So clearly this market is strong and could easily grind higher.
To this point, Egypt has proved to be a non-factor in the market. The market has a way of discounting what is not relevant which makes it important to tune out much of the daily news. The 2009-2010 leaders continue to act strong with the likes of AAPL, AMZN, PCLN, CMG, OPEN, ARMH, LULU, BIDU, and NFLX all near all time highs.
The big change in market leadership has been all the Oil & Gas, Energy and Equipment Companies that have exploded on the seen. Stocks like NOV, CAT, DE, and HAL have participated well and there is a clear sign that institutions are rotating into some of these stocks. These are typically not the type of stocks that growth investors are looking to buy.
Retail stocks look strong with stocks like LULU and UA breaking out to new highs. As well, discount broker stocks are showing up with TROW, AMTD and SCHW looking strong. It would seem logical that sales and earnings will increase as the retail investors starts to feel better about stocks and wanting more exposure. They are typically the last piece to the puzzle and late as the market has now doubled off the March 2009 bottom. Regardless, it is bullish to see financial stocks participate.
With all this said, there is some caution that needs to be observed. We are now approaching 24 months on this major uptrend from the 2009 lows. Most bull runs average 24 months before some type of intermediate pull back happens. This is just an average so we could clearly move higher into the spring. Distribution Days are at elevated levels which is a yellow flag to watch. Distribution Days are higher volume down days that indicate institutional investors are lightening up on stocks. Typically when you get to 6 of these Distribution Days the market is in a corrective phase and it is time to be in cash. The Nasdaq currently has 4 Distribution Days.
Friday, January 21, 2011
JANUARY 21, 2011
The Market has a different feel this week as we experienced 2 Distribution Days on the Nasdaq. Distribution Days are a sign that Institutions are selling stock. Market rallies tend to fizzle and correction begin with 5-6 Distribution Days. We now have 3 Distribution Day on the tally.
More importantly, it is critical to watch your stocks and the leaders for further evidence of the health of the general market. If you recall, in November the indexes experience some pullback but the leading stocks never budged which was the clue the uptrend was intact. Now, while the indexes are holding up decently, the leaders are getting hit which is the "tell" that we may be in for more of an intermediate term correction. Another indicator, bullish sentiment, is near the highest levels we have seen in the last two year. History has shown that most bull runs last 24 months. We bottomed in March 2009 so we are very close to the historical average.
However, all that matters is whether the market leaders are holding up. In evaluating many leading stocks, many are beginning to lose their 50 Day Moving Average (DMA). A stock that loses the 50DMA on heavy volume is a sell sign for me. It is important to have strict sell rules for any stock you own.
Some examples of leaders now under the 50DMA include CMG, CRM, FFIV, BIDU, NFLX, DECK and AMZN. Some recent breakouts are not holding and now back to their pivot points or under them. Examples of this includes NTAP and VMW. Another warning sign is the reaction to the earnings numbers of both AAPL and GOOG. Both companies announced numbers well above estimates, they rallied and then reversed much lower on heavy volume.
So while you can't completely put a fork in the latest uptrend; we have several warning signs. It is time to be off margin and on guard for further downside. The market requires a more protective stance right now and there is nothing wrong with getting back in if the market reasserts itself and makes new highs. But to me now, cash is king.
More importantly, it is critical to watch your stocks and the leaders for further evidence of the health of the general market. If you recall, in November the indexes experience some pullback but the leading stocks never budged which was the clue the uptrend was intact. Now, while the indexes are holding up decently, the leaders are getting hit which is the "tell" that we may be in for more of an intermediate term correction. Another indicator, bullish sentiment, is near the highest levels we have seen in the last two year. History has shown that most bull runs last 24 months. We bottomed in March 2009 so we are very close to the historical average.
However, all that matters is whether the market leaders are holding up. In evaluating many leading stocks, many are beginning to lose their 50 Day Moving Average (DMA). A stock that loses the 50DMA on heavy volume is a sell sign for me. It is important to have strict sell rules for any stock you own.
Some examples of leaders now under the 50DMA include CMG, CRM, FFIV, BIDU, NFLX, DECK and AMZN. Some recent breakouts are not holding and now back to their pivot points or under them. Examples of this includes NTAP and VMW. Another warning sign is the reaction to the earnings numbers of both AAPL and GOOG. Both companies announced numbers well above estimates, they rallied and then reversed much lower on heavy volume.
So while you can't completely put a fork in the latest uptrend; we have several warning signs. It is time to be off margin and on guard for further downside. The market requires a more protective stance right now and there is nothing wrong with getting back in if the market reasserts itself and makes new highs. But to me now, cash is king.
Sunday, January 2, 2011
JANUARY 3, 2011
Happy New Year to all......
We can expect to see volume come back in the indexes and stocks this week. It remains to be seen if Institutions want to continue to sell the leaders. The indexes are still in very good condition; however have rising in very light volume. The leading index, the Nasdaq, only has 3 Distribution Days on its tally. Leading stocks have sold down in equally light volume and in most cases their 50 Day Moving Average have served to hold. BIDU was the first leader to lose its 50DMA and then last week NFLX and CMG failed to hold their 50DMA. It doesn't appear that any severe damage was done but definitely gives me reason to be on high alert. It doesn't pay to try and anticipate what the market will do but rather wait, observe and then make trading decisions. The liquid leaders of 2010 are all within reasonable distance from new highs and until otherwise proven guilty are on any longs short list for the start of 2011. However, some are extend and many don't offer logical buy points here. Stocks that continue to lead include:
AAPL,ACOM,AMZN,ARMH,CRM,FFIV,FTNT,LULU,LVS,NFLX,OPEN,PCLN,RVBD,VMW
We can expect to see volume come back in the indexes and stocks this week. It remains to be seen if Institutions want to continue to sell the leaders. The indexes are still in very good condition; however have rising in very light volume. The leading index, the Nasdaq, only has 3 Distribution Days on its tally. Leading stocks have sold down in equally light volume and in most cases their 50 Day Moving Average have served to hold. BIDU was the first leader to lose its 50DMA and then last week NFLX and CMG failed to hold their 50DMA. It doesn't appear that any severe damage was done but definitely gives me reason to be on high alert. It doesn't pay to try and anticipate what the market will do but rather wait, observe and then make trading decisions. The liquid leaders of 2010 are all within reasonable distance from new highs and until otherwise proven guilty are on any longs short list for the start of 2011. However, some are extend and many don't offer logical buy points here. Stocks that continue to lead include:
AAPL,ACOM,AMZN,ARMH,CRM,FFIV,FTNT,LULU,LVS,NFLX,OPEN,PCLN,RVBD,VMW
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