An Encouraging Sign?
After my weekend of reflection and time away from work, things still are not
begging to be bought. Friday logged the first day of distribution in the Nasdaq,
but with the downward-moving pace we’ve been seeing, there won’t be enough time
to log many distribution days before we take out the recent low, thus killing
the rally attempt.
Despite numerous Fed cuts, corporate
profits and economic numbers, particularly in the areas of unemployment,
continue to show weakness. It is difficult to imagine where the market would be
right now without any rate cuts!
In looking to leading sectors and
individual stocks, we are able to come up with a few more this week than last.
This is either an encouraging sign or a last gasp. Medical stocks and companies
dependent on consumer loans have been pushing towards the top of the industry
tables.
Generic drug producer, Ivax
(
IVX |
Quote |
Chart |
News |
PowerRating)
has been working on a year-long base and is forming a handle. The company has
benefited from tighter times as its EPS has seen double-digit growth over the
past three quarters.Â
Recent winner from the April rally, US Physical Therapy
(
USPH |
Quote |
Chart |
News |
PowerRating)Â
is setting up in a second-stage base. Fundamentally and technically, this one
fits the bill, although it trades very thin and can present investors with a
“whipsaw” effect to watch out for!
As I write this, Americredit
(
ACF |
Quote |
Chart |
News |
PowerRating)
is breaking out of a “V”-shaped, seven-week base on above-average volume. Americredit
was one of the first stocks to break out in April when the market confirmed its
rally with a follow-through day. The company’s earnings have consistently grown as
rates have dropped.
The homebuilders are also attempting
to push up the right sides of their bases. Although the base is too wide and
loose, Beazer Homes
(
BZH |
Quote |
Chart |
News |
PowerRating) is one of the first to push toward its May high.
MI Schottenstein Homes
(
MHO |
Quote |
Chart |
News |
PowerRating) and Meritage
(
MTH |
Quote |
Chart |
News |
PowerRating) are consolidating toward
the bottom of their ranges.
As this market has been falling, I
have been watching for signs that it is going to go one way or another and
haven’t seen much evidence in either case. On one hand, we are moving towards
the lows and have seen slight distribution, but not overwhelming selling. On the
other hand, there are strong companies setting up sound bases, but these are far
and few between. Some of our recent leaders are beginning to break out or are
poised to break out of second-stage bases, i.e.,
(
ACF |
Quote |
Chart |
News |
PowerRating) and
(
USPH |
Quote |
Chart |
News |
PowerRating).
As an intermediate-term investor, I
think it
will be important for us to look hard for the stocks, sectors and ultimately the
market to tip its hand. Technically, a rally is in effect until the Naz breaks
below 1973 or logs four or more days of distribution. It will be important to
see how leading stocks act, as long as the market hangs on.
I would like to thank everyone for
your insightful feedback. If there are any topics or issues you would like
addressed in future columns or lessons, please do not hesitate to pass them
along to me….from basic questions to advanced inquiries.
Until Thursday,
Â