Tuesday, October 26, 2010

Buyers Erase Early Losses as Volume Ends Mixed

Market Leaders continue strength

Early selling pressure quickly dissipated as buyers stepped up to push stocks well off their lows of the session to close positive. Better than expected Consumer Confidence and Richmond Fed Manufacturing Index figures fueled buyers just after the 10am hour. Volume ran mixed all day long with the NASDAQ volume running higher while the NYSE fell behind Monday’s pace. All the major indexes were able to close in positive territory, but the close lacked the buying surge we would have loved to see. Regardless, the move off the lows and with a few market leaders pushing higher the day was a positive one.

The NASDAQ gapped down taking out the 2480 level, but it wasn’t gone for too long. Case-Shiller pricing data was not perceived as a positive for the market stoking a bit of fear in the hearts of traders. Once 10am hit the NASDAQ was able to recover and leap frog the 2480, but found a new resistance level. 2500 level on the NASDAQ is playing resistance for now and we’ll need to see the index to push above with volume very soon to avoid the risk of rolling back over.

Market leaders are always important and most important to gauge the health of the market. At the moment our leaders continue to look strong and continue to build on gains. Our cloud computing leaders have even reversed course from their October surprise to turn positive. High fiving FFIV sprinted nearly 7% in after-hours trading after leaping almost 2% in the day’s session. FFIV was a stock that flashed a buy signal on Friday along with another cloud computing play. It is truly a positive signal for these types of move for the market.

A big mistake traders are going to make will be one of two things. Either they will sell TOO early or sell TOO late; it is ok to take profits off the table as a stock moves higher. It isn’t ok to sell off an entire position in a strong uptrend when you own a strong fundamental stock. If you do sell too soon do not hesitate to jump back on a leading stock. Often times traders make the mistake of not getting back on a stock they sold only to watch the stock blast higher. Be sure to take profits, but be wise and judicious on how you sell.

The market is set to continue its uptrend and without major distribution days and major market leaders crumbling it is hard to think we roll over here. In October when our cloud computing plays turned sour, they were able to find support at their 50dma. A good sign and now have reversed their course. If this market were to roll over we’d see more than just one group fall flat.

One group to continue to keep an eye on is the financial stocks. They continue to feel a tremendous amount of pain and for good reason. After a decade of poor management and excess leverage the filth remaining on their balance sheet will haunt them for quite some time. With that said, even small moves to the upside will help out this market and any sustained move will only support this market further.

Always keep your losses short and ride your winners!

Monday, October 25, 2010

Late Day Selling Throws a Dent in Day’s Gains

Good housing data fails to spark buyers, but stocks end in the green.

An unfortunate reversal at the end of the day leaves a sour taste in the mouths of traders. A better than expected existing home sales figures did give a temporary boost to prices, but it quickly faded as the market began its mid-day weakness. Volume ran higher on the NYSE all day long, but it wasn’t until the afternoon until the NASDAQ’s volume began to outpace Friday’s levels. The last thirty minutes of the trading session saw sellers dominate trading. Many leading stocks held up nicely, but a few did follow the general market. We did not see any major reversals from leading stocks as many remain very healthy. Not a great day, but our uptrend remains.

Over the weekend the G20 meetings did have a few notable headlines. In the grand scheme of things we only care about leading stocks and the price and volume action of the market leaders. If we were to pay attention to the noise coming from news outlets would only cloud our judgment and ruin our returns. It is very difficult to guess how the market will react to a certain situation, but if we focus solely on the market action and leaders we can avoid costly mistakes. We see too often traders try and “trade” news headlines and guess a new trend. It simply isn’t a wise move in this game.

We did see the 2480 level taken out, a level I had spoken about last week. Friday we saw sellers keep the NASDAQ from breaking this level even with a few leaders breakout out or getting support at major moving averages. Now the market is receiving headwinds at the 2500 level and this market will need to be able to break above and hold. And of course we’ll be watching April highs as the market approaches those levels.

Right now the NASDAQ has two days worth of distribution with a quasi stall day. Today can be classified as a stall day because volume was higher than Friday, but it was below the 50dma. The caveat is volume coming below average, but be aware if this market does flash another stall day or heavy distribution.

Tomorrow we’ll get another round of housing data from Case-Shiller and a reading from the Richmond Fed regarding manufacturing. However, more importantly tomorrow will be one week until the mid-term elections and continued talk about what it means to the market will continue. Do not pay attention to the noise, focus on the action of market leaders and the overall market!

Always cut your losses short!

Wednesday, October 20, 2010

Stocks Rebound from Tuesday’s Losses

Late day selling ends stocks off the highs as volume slows

Late day selling put a cap on the day’s excitement as stocks rebound from Tuesday’s heavy distribution day. All eyes would point to the Federal Reserve’s release of its beige book at 2pm EST. Prior to the release the market was able to build upon its gains as it moved higher. Volume simply couldn’t keep up with Tuesday’s pace ending lower across the board. The end of the day selling certainly did not inspire confidence, but a few after-hours earnings reports helped soothe any pain. A nice recovery, but we’ll need to see the market flash more accumulation.

NFLX earnings and its subsequent push in after-hours trading gave a cheer to traders. The stock continues to be a favorite of shorts due to its “valuation.” The biggest winners of all time tend to have a high valuations are due to the demand for the stock. Regardless, NFLX stock is a true winner and continues to be a top stock. NFLX is looking to follow in GOOG’s footsteps post earnings release and avoid an AAPL like day.

Another darling in after-hours trade was EBAY as the stock shot up more than 7%. After-hours trading can be misleading, but with EBAY posting strong numbers the stock will look to move along with NFLX. Although its quarterly report didn’t come close to matching NFLX’s growth the report was strong considering the size of EBAY. The NASDAQ will get a boost from EBAY and NFLX

The market remains in an uptrend even with Tuesday’s distribution day. Despite who CNBC parades through their studios or who Bloomberg throws on the radio we have a viable uptrend. History suggests bull markets do not last longer than 18 to 24 months, but for now this rally from March 2009 can still go higher.

From a historical perspective, one our members have heard is we are likely heading for major headwinds over the next 6-12 months. Despite what Ken Fisher or other bulls may squawk about mid-term elections it is highly likely we see a correction of more than 20%. We could even delve into a 1940 to 1942 type market where we simply roll over and take out our March 2009 low much like the 1942 took out the 1938 low. Anything is possible, but for now we are focusing on the long side until we begin to see more “topping” signals from the market.

This market will more than likely push higher, but remember to always cut your losses!

Saturday, October 16, 2010

Top Current Holdings With Total Returns And Date Of Purchase

Long 56 stocks 98-100% invested on full margin. All longs listed were posted on the website before being purchased for subscribers of the silver, gold, and platinum packages under the ‘new longs’ section.

stock symbol – total return – date of purchase

JKS 138% 7/13
LCUT 126% 11/2/09
LGL 101% 9/8
RES 60% 7/13
JOBS 56% 8/16
MIPS 51% 8/20
ISLN 36% 8/31
ASYS 34% 9/1
CHTP 29% 9/3
SOL 27% 9/14
IVN 26% 9/14
NSU 24% 8/20
XXIA 22% 8/31
SPRD 22% 8/27
CGNX 18% 9/24
UFPT 18% 9/15

Friday, October 15, 2010

Bank and Education Stocks Weigh on Stocks

The market side steps a distribution day consolidating recent gains.

New banking fears helped push stocks lower, but a late afternoon buying spree lifted stocks off the lows of the session. Today’s consolidation was not out of the ordinary considering the move in equity prices, but the late day buying did help ease any worry. Education stocks once again were hit hard after APOL had some tough news for the market to digest. Banks and education stocks were the leading cause of the equity decline today even as volume came in lower across the board. The market was able to avoid distribution with volume sliding lower on the day. A great day of consolidation for the market showing this uptrend is quite healthy.

The real story was in after-hours trading with GOOG stock jumping around 9% after the company reported its quarterly results. We can get into the positive news out of the company like a rise in paid per click but the true test will come when the stock trades tomorrow. Will the stock gap and run? Yesterday we saw a few stocks gap and reverse like JPM, IGTE, and ADTN. GOOG on other hand has been a stock beaten up after earnings reports as of late. The strong posting in earnings is a positive sign for technology stocks.

Once again our financial stocks have a new fear to get over. The foreclosure crisis is just another step in our banking system deleveraging a system riddled with fraud and illegal behavior. Removing the excess leverage in the system is uncovering many naughty secrets from the housing boom of the last decade. When the government swooped in and saved the banks it kicked the can down the road rather than dealing with everything up front. We can equate this to taking off a band-aid, when the government stepped in it essential was stopping the band-aid from being ripped off. Now, we are dealing with a slow wrenching pain. Regardless, banks continue to look weak and not a sector we’d entertain, but they do weigh on the overall market.

It is quite impressive given the education stock debacle and foreclosure crisis the market was able to avoid a day of distribution. Normal corrections during an uptrend are to be expected, but we are far from what is normal and to see the market shrug off this type of fear is good news.

This uptrend is very healthy and we continue to find more stocks breaking out of bases it is hard to think this market cannot go higher. Stay focused and enjoy the weekend!

Thursday, October 14, 2010

Zoll Medical Corporation: Strong Growth in a Growing Medical Equipment Market

As per their website Zoll Medical is a leader in medical products and software solutions, helps responders manage, treat, and save lives in emergency rescues and in hospitals; outside the hospital while at work or home; in doctors' and dentists' offices and schools; in public places and on the battlefield. ZOLL's products contribute to managing patient care and savings lives, as well as increasing the efficiency of emergency medical, fire and hospital operations around the globe.

When we look at the recent growth in EPS and sales for Zoll Medical (ZOLL) we can see that their products are clearly in demand. During the past two quarters YOY EPS growth has been 113% (.17 compared to .08) and 271% (.26 compared to .07). Sales growth during the past four quarters YOY have increased 2%, 18%, 15%, and 17%. Even better, 2010 and 2011 EPS estimates are for gains of 89% and 38% respectively.

The company also carries 0% in debt, has a Return on Equity of 3%, an EPS growth rate of 32%, and a cash flow of $1.34. Zoll Medical definitely has strong growth and sound financials.

Stocks do better when they have other stocks in their industry group performing well on a RS basis. Nxstage Medical (NXTM), Dexcom (DXCM), BSD Medical (BSDM), Tearlab (TEAR), Synergetics USA (SURG), CAS Medical (CASM), Hill-Rom Holdings (HRC), and Cephid (CPHD) are just some of the stocks in the Medical-Systems/Equipment industry group that carry RS ratings of 80 or higher. So this is just one more item in favor of Zoll Medical moving higher.

Recently mutual fund ownership has started to increase again from 94 funds in the most recently reported quarter from 90 the quarter before. However, four quarters ago the stock did have 102 funds invested in it. That is OK, since we do have growth in the most recent quarter.

While these numbers are impressive for Zoll Medical, the most important aspect is the chart. Is the stock in an uptrend and under accumulation? Yes. Since that is the case we need to find a good low risk high reward entry. On that end the move on Thursday is definitely what I was looking for.

The stock bounced off recent support on strong volume with the stock breaking above the short-term downtrend line. The stock also closed very near the HOD indicating the buying should spill over to Friday morning. The purchase price for me is the 33.41 close on Thursday.

This is a great stock with strong fundamental growth and a bullish chart under accumulation. With the market being in a current uptrend thus putting the odds of purchasing this stock well in our favor, Zoll Medical will be a new purchase for me on Friday.

If the stock does not move higher immediately, I will be cutting my losses—protecting my hard earned capital—with a close below the LOD of Thursday (32.25).

Disclosure: Long Zoll Medical (ZOLL)

Stocks Slide in Last Hour of Trade, but End Higher on Volume

Current uptrend logs another day of accumulation

Late day selling dampened the mood, but an overall positive day in the markets. Volume jumped across the board as the market mostly cheered about positive earnings reports and tepid inflation readings. Import prices were relatively in-line with expectations despite the overwhelming talk about the Federal Reserve second round of monetary easing. The late day selling is not surprising considering the move in the markets, but the action from stocks post earnings reports leaves a sour taste in the mouth. Even with the weak close the market is still in a solid uptrend.

The weak close suggests we may see a pull back tomorrow. The chances are good we see the market take a breathier. Consolidation is a necessary process for the market to undergo as we simply cannot go straight up. These periods can last a few hours in rare cases to a few days. As long as we do not see market leaders collapse and distribution the resting period is quite normal action. Pay attention to your stocks, if they begin to weaken take notice and make sure you are taking profits.

The earnings curse once again hits this quarter with JPM, IGTE, and ADTN reversing after seemingly good earnings reports. JPM stock is far from one we would like to be long, but the action in IGTE and ADTN both leaders are slightly troubling. Both were able to find support at their 50dma, but their charts are now damaged. It will take some time to repair the damage done today, but it isn’t something we would want to stick around to wait for. We’ll need to see the stock tighten up and form another base before we would get long.

Another big deal of the day was AAPL stock hitting the $300 market. The stock was able to hang onto the mark as the company said it would release a new operating system. AAPL stock has been a stalwart of this market rally and has yet to suffer any major setbacks. If this market is to go higher, we’ll need to continue to see strength in the market.

In a surprising move a deal for YHOO stock surfaced after-hours pushing the stock higher by 13%. The move will certainly help the NASDAQ tomorrow, but the question will be if the rest of the market will respond positively to the bid for a beat up technology stock. On the other hand you have ORCL posting a strong day without a takeout rumor. Ideally, you want to own a stock that is strong and not guess whether or not the stock may be taken out.

Be mindful of your losses, always cut them short.

Top Current Holdings With Total Returns That Closed Higher Today: JKS 140% JOBS 65% LGL 64% RES 57% MIPS 47% SOL 41% ISLN 31%, IVN 30%, NSU 24%, CGNX 21%, XXIA 21%, GBG 20%