Squeezing Blood From A Stone
While the stock market continues to
struggle along, the struggle continues for the aggressive-growth trader in
finding sound ideas.
There are a handful of ideas at best,
but the Nasdaq Composite will have to follow through from last week’s
follow-through day to get them going on the upside.
Although one day late, the Naz snuck
in an FTD last Thursday, by climbing 2% on increased volume. However, the more
powerful follow-through signals have a habit of occurring within four to seven
days of a closing low, with 10 days typically the max. Thursday’s FTD signaled
11 trading days from the August 2 closing low of 3658.46, thus one day outside of
the bona fide window.
However, despite the Naz’s apparent
FTD, it continues to wallow in murky waters.
The 3900 level is an upside sticking
point and stuck right smack dab in between its 200-day and 50-day moving
averages, but below its 200-day. (Healthy market environments find themselves
trading above the 200-day.)
Can it follow through from its
follow-through this week? Then again, the anecdotal evidence from the talking
heads on the tube seems to suggest the Fed will remained “unched” on
its interest-rate maneuverings this week. So, if the market’s recent short-term-rally phase was nothing more than a case of
“buy-the-rumor-sell-the-news” phenomenon, perhaps the market will sell off on its no-tightening word.
And while it’s still quite difficult
to pinpoint anything worth grabbing on the long side — with the right basing
pattern, the right earnings and revenue growth, the right relative-strength
ranking, in the right group, and with the right amount liquidity — there are a
few stocks worth watching at this point, even if it’s squeezing blood from a stone.
Broadcom
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the high of its five-week handle late last week on slightly higher weekly volume
than the previous week — a plus. Although the overall
semiconductor-manufacturing group dropped in the O’Neil ranking system from 2 to
21 over the past six weeks, it appears the market is justly rewarding the chipmaker
for its addition into producing chips for the fiber optic community — the
hottest play in the world economy right now.
Previously, the company’s main focus
was increasing bandwidth for existing copper wiring but there’s no denying a
company staying strategically dynamic.
Broadcom currently sports a very high
O’Neil RS ranking of 96 to go along with its strong bottom-line and top-line
growth. Last quarter the company came through with a year-over-year increase in
quarterly earnings of 156% and revenue growth of 105%, while after-tax profit
margins remained at a hefty 23.4%.
Nonetheless, volume will need to surge
at least 40% above normal if the stock breaks out from its handle. Without
meaningful volume on the breakout, the next move in the stock will become
questionable.
Another leader to keep an eye on is
Brocade Communications
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PowerRating).
While the stock surged off its lows
into new high ground a couple of weeks ago, it’s since settled into a two-week
handle to go with its three-week cup formation.
The company reported
better-than-expected earnings last week, which came in at a hefty increase of
1500% on a year-over-year basis. The company’s YoY quarterly earnings growth has
accelerated over the past four consecutive quarters — 186%, 400%, 1200% and
1500%, while YoY revenue growth has maintained an existence north of 300% over
the same period.
But while both Broadcom and Brocade
exude the sort of fundamental and technical characteristics the
aggressive-growth trader should hunt for, profitable price moves still come down
to market direction. Moreover, for every Broadcom and Brocade there are still a
lot of hits and misses going in the market — breakouts are still failing, while
other stocks with similar fundamental characteristics lack the right kind of
technical input for low-risk entry points.
Ciena Corp
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PowerRating), which also
responded well to better-than-expected earnings numbers last week, attempted to
break out from a loose, five-week handle. This poor setup was met with a negative
price reversal Friday on heavy volume. Either the stock enters a tight trading
range from this point, thus forming a sound handle to go with its overall cup,
or, again, it’s just not yet the right market environment for aggressive-growth
stocks.
Applied Micro Circuits
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PowerRating) was
another with solid earnings growth — YoY quarterly earnings growth has
accelerated over the past four quarters from 50% to 250% — that tried to
break out to new highs late last week.
Unfortunately, the stock attempted to
emerge from a loose, “V”-shaped, “wedging” pattern, and did
so on below-average volume.
Outside of the names above, Micrel
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which shot up the right side of its cup last week, PMC Sierra
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Sapient
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PowerRating), and Transwitch
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PowerRating), which also vaulted up the right
side of its cup, should be watched for further developments. All of them have
the right earnings numbers and RS ranking, and have remained in basing patterns
despite the recent nose-dive action of plenty of other high-growth names.