Naz: A Low Of Significance?
Outside of the resurgence in financial
stocks, the intermediate-term traders watch list should still be fairly bare.
Although the financials could get the
S&P 500 and NYSE Composite kick-started again on the upside — perhaps
helping them to finally break out of four-month ranges — the aggressive-growth
arena leaves a lot to be desired.
Aggressive-growth stock investing is
the focus of this column — it’s where the real juice in the market is. Many
stocks in this arena tried to re-assert themselves over the past two months, only
to succumb to a case of the blues. The result: multiple base-breakout failures and, if a trader wasn’t careful, multiple fractures in one’s trading account.
The financials are hardly the appetite
of an aggressive-growth trader’s forte. The sector’s resurgent strength last
week may be telling us something about the economy, inflation, and the
anticipation the Fed’s ever closer to the end of its tightening cycle, but it’s
hard to get too excited about any of these stocks.
After studying some of the leading
stocks in the various, finance-related industry groups over the weekend,
most lack one characteristic or another to fitting the profile of a big-winning
stock. Of the leaders, either the earnings aren’t up to snuff, the
relative-strength ranking isn’t healthy enough or the base is too loose.
Nonetheless, this doesn’t mean
sustainable leadership won’t develop in this sector. However, without all of the
necessary characteristics in place, it’s usually best to sit back to see if
something worthwhile does develop. If so, the best stocks may surge in price,
alongside an accelerating trend in earnings growth, then form a tighter basing
pattern at higher levels. Although this means letting some opportunities fly
away from here, the intermediate-term trader increases his/her odds of latching
onto a real winner by waiting for the real leaders — stocks with
institutional appeal — to reveal themselves.
One such institutional-quality issue
is Capital One Financial
(
COF |
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PowerRating).
Cap-One moved up the right side of its
loose 15-month basing pattern over the past five weeks on increasing volume. The
stock sports an O’Neil EPS rating of 95, with a five-year growth rate of 28% and
year-over-year quarterly earnings growth in excess of 30% over the past four
quarters. Not the most exciting level of earnings growth, but very solid for a
finance company. Moreover, the number of mutual funds holding the stock
increased for nine consecutive quarters from 81, in the quarter ended Dec. 31,
1997, to 338 in the quarter ending Mar. 31, 2000. Fund ownership held steady
during the last quarter.
Again, however, with all of the recent
rotation in the market, it remains to be seen if anything sustainable develops.
For the aggressive-growth trader, the
tech-laden Nasdaq Composite is certainly the index of choice for analysis. But
its fits and starts over the past seven weeks has left the trader high and dry
for the most part. Does the Naz’s recent technical breakdown mean worse things
ahead? Not necessarily. However, if the long-side trader is already in a
high-cash position it doesn’t really matter.
The Naz demonstrated strong support
Thursday (see graph below), but nothing to get too excited about — at least as
far as trying to line up some fresh buys. It’s one thing to see the index put a
strong upside price reversal, but yet another to see if it can follow through.
That’s why we wait. Even so, there’s still not much to look at. And with all of
the recent breakout failures, it makes it quite difficult to have much
confidence in buying the next breakout.
Nonetheless, if the Naz can come
through with an FTD this week, Broadcom
(
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PowerRating) is one to keep an eye on. It
actually held up well during the Naz’s slide. It’s heading into the fourth week
of a handle, in a 19-week cup-with-handle pattern. The one caveat so far in the
handle — lack of upside volume.
Sapient Corp
(
SAPE |
Quote |
Chart |
News |
PowerRating) is certainly
another to watch. It surged up the right side of its 32-week saucer pattern on
last week’s better-than-expected earnings number, and stock-split announcement, on the heaviest weekly volume
in 13 weeks. It was one of the only high-growth stocks to follow through to the upside on a Q2 report. Year-over-year quarterly earnings and revenues accelerated over the
prior quarter from 58% to 77%, and from 74% to 96%, respectively.