Is There A Boardwalk In Portugal?
As I stood on the boardwalk overlooking the Atlantic Ocean one evening last
week, my four-year-old daughter gave me great insight into the stock market.
Holding her up so she could see the beautiful ocean ebbing and flowing against
the moonlit sky, I asked, “Jordy, what do you think is on the other side of
the ocean?”
“Another boardwalk?” she asked.
On the other hand, when I got back to the beach house I asked my six-year-old
son the same question. Instead of asking, he answered with relative assuredness,
“I think there’s a waterfall on the other side.”
My son, who is obviously a bit older and more learned than my daughter,
thought he had the answer. My daughter, however, answered with a question.
The moral of the story: The more experience we acquire in the market, the
more we think we know the answer. Instead, we should think like a
four-year-old — answer each question with a question. It’s okay to develop
several different scenarios in our mind about what the market will do, but only
act on what’s really happening.
I only bring this up because that’s where we seem to be in the market.
Will the market break out of its month-long range or break down? I don’t
know. But whichever way it does, react to it by either getting more long or
cutting back on positions if any of them fail.
The current state of the market: the Nasdaq Composite is still operating on
its O’Neil follow-through signal from June 2, having held that day’s gap up
opening for the past four weeks. And despite the failed breakouts among names
such as Analog Devices
(
ADI |
Quote |
Chart |
News |
PowerRating), Cytyc
(
CYTC |
Quote |
Chart |
News |
PowerRating), Nvidia
(
NVDA |
Quote |
Chart |
News |
PowerRating),
Triquint Semiconductor
(
TQNT |
Quote |
Chart |
News |
PowerRating), and Xilinx
(
XLNX |
Quote |
Chart |
News |
PowerRating), more leading stocks
have actually successfully followed through on their base breakouts. Moreover, a
handful of stocks even broke out from basing patterns last week.
Actel
(
ACTL |
Quote |
Chart |
News |
PowerRating) and Advent Software
(
ADVS |
Quote |
Chart |
News |
PowerRating) come to mind, while GSI
Lumonics
(
GSLI |
Quote |
Chart |
News |
PowerRating) followed through to new highs on heavy volume, following
its cup-with-handle setup.
To boot, the majority of names I’m watching continue to act fine in their
base-building efforts: Broadcom
(
BRCM |
Quote |
Chart |
News |
PowerRating), Brocade Communications
(
BRCD |
Quote |
Chart |
News |
PowerRating),
Celgene
(
CELG |
Quote |
Chart |
News |
PowerRating), Cephalon
(
CEPH |
Quote |
Chart |
News |
PowerRating), Ciena Corp.
(
CIEN |
Quote |
Chart |
News |
PowerRating), Cor
Therapeutics
(
CORR |
Quote |
Chart |
News |
PowerRating), Cree Research
(
CREE |
Quote |
Chart |
News |
PowerRating), Flextronics
(
FLEX |
Quote |
Chart |
News |
PowerRating),
JDS Uniphase
(
JDSU |
Quote |
Chart |
News |
PowerRating), Juniper Networks
(
JNPR |
Quote |
Chart |
News |
PowerRating), Nortel Networks
(
NT |
Quote |
Chart |
News |
PowerRating),
Oracle Corp.
(
ORCL |
Quote |
Chart |
News |
PowerRating), Scientific Atlanta
(
SFA |
Quote |
Chart |
News |
PowerRating), Spectrasite
(
SITE |
Quote |
Chart |
News |
PowerRating),
STMicroelectronics
(
STM |
Quote |
Chart |
News |
PowerRating), PMC Sierra
(
PMCS |
Quote |
Chart |
News |
PowerRating), Sapient Corp.
(
SAPE |
Quote |
Chart |
News |
PowerRating),
Siebel Systems
(
SEBL |
Quote |
Chart |
News |
PowerRating) and Varian Inc.
(
VARI |
Quote |
Chart |
News |
PowerRating) are all in various stages
of building, or completing, the right side of basing patterns.
Some newer ones also perked up last week and bear watching: Diamond Tech
Partners
(
DTPI |
Quote |
Chart |
News |
PowerRating) and Photon Dynamics
(
PHTN |
Quote |
Chart |
News |
PowerRating) popped up on my watch list.
Both have strong earnings growth and high O’Neil RS ranks.
But is it a little troubling to see Analog Devices, Cytyc, Nvidia and
Triquint fall on their breakout attempts? Absolutely. I owned three of them. Is
it ominous that, despite the market’s late-day rally on huge turnover, of the
nine stocks I consider the early leaders to this point, four of them showed
distribution Friday?
Anaren Microwave
(
ANEN |
Quote |
Chart |
News |
PowerRating), Pericom Semiconductor
(
PSEM |
Quote |
Chart |
News |
PowerRating), Techne
(
TECH |
Quote |
Chart |
News |
PowerRating) and Tollgrade Communications
(
TLGD |
Quote |
Chart |
News |
PowerRating) all declined on increased
volume Friday, while SDL Inc.
(
SDLI |
Quote |
Chart |
News |
PowerRating) has experienced five down days on
above-average volume over the past nine. Nonetheless, SDLI refused to give up
any ground over the past week and is still holding above its 21-day moving
average.
The other four leaders, Corning
(
GLW |
Quote |
Chart |
News |
PowerRating), Elantec Semiconductor
(
ELNT |
Quote |
Chart |
News |
PowerRating),
Keithley Instruments
(
KEI |
Quote |
Chart |
News |
PowerRating) — the sell-rule breaker — and Newport Corp.
(
NEWP |
Quote |
Chart |
News |
PowerRating), though extended in price, have yet to show any signs of
wear-and-tear.
On balance, the overall action of the above-mentioned stocks is
positive. There have been some failed breakouts, a bit more on the side of
successful breakouts, some signs of distribution among some leaders, which can
be considered normal following such lofty moves already, and many more stocks
still acting well in their base-building stages.
So, beneath the market’s trading range, some good things are
happening. This may portend a positive outcome to the trading range.
But what about Friday’s action in the major indices? What was that
at the end of the day? Was all that volume for real or was it a combination
of window dressing and re-balancing — especially in the Russell 2000 stocks?
If it was fake, will everything just implode from here? Or will
this four-week range be taken out topside anytime soon?
Then again, is there another boardwalk on the other side
of the Atlantic Ocean? Maybe. But I don’t know. I’ve never been to Portugal.