How To Pick Stocks In A Difficult Environment
The
stock market remains in an uptrend, but
seems to be having some difficulty with the current environment. The current
trend of light-volume rallies is continuing through today as the Nasdaq posted
another low-volume rally. The S&P 500 posted a gain on below-average trade.
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We saw the leading Nasdaq
post three distribution days, or evidence or professional selling, on 1/27,
1/28 and 2/4. Since then, there has not been much conviction to buy into the
market. It seems the more ‘Bush-bashing’ we hear, the more likely
the market is to lapse into corrective/consolidation mode. The economy is improving
and jobs are increasing (see last Friday’s unemployment report). With
corporate earnings on the uptick, growth companies doing better each quarter
and the strongest amount of life moving into venture capital for tomorrow’s
leaders, there is no doubt that the stock market favors the Bush administration.
^next^
We have also seen growth
companies attempt breakouts and unable to make any real progress. Aeropostale
(
ARO |
Quote |
Chart |
News |
PowerRating) attempted a move through a handle at 32.25 on 2/5.
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Dick’s
Sporting Goods
(
DKS |
Quote |
Chart |
News |
PowerRating) is working through a move through 53.25,
but has not found any above-average volume to support it.
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What happens when a stock
keeps pushing higher on low volume? Imagine what one investor with a significant
amount of shares can do to that stock, if they want out at these higher prices
with very few buyers to absorb their pressure.
Inter
Parfums
(
IPAR |
Quote |
Chart |
News |
PowerRating) made a big-volume move through a choppy
base and pivot point of 26.27 today. The company comes from a fairly strong
group although leaders like Usana
(
USNA |
Quote |
Chart |
News |
PowerRating) are trading below their short-term areas of support.
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Primus
Telecom (PRTL) is a less expensive stock, but it had been doing
extremely well up until last Friday. It has found meager support at its 200-day
moving average, but is not impressive of a stock that had been so strong.
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Netflix
(
NFLX |
Quote |
Chart |
News |
PowerRating) was due for a correction and that may be coming on news that poor-performing
Blockbuster
(
BBI |
Quote |
Chart |
News |
PowerRating) is going
to enter the online DVD rental business.
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Corrections are necessary
for a continued advance and that is how this one should be looked at. Despite
the negative Sohu news on 2/3/04,
we have seen stocks like Sina
and China continue to set-up above
their 50-day moving averages. There’s no doubt that if China completes
the spin-off of its mobile unit in an IPO, there may be much success on the
heels of something like Google going public later this year.
The market DOES remain in
an uptrend, but right now remains a cautious environment. It is important to
choose stocks from quality growth names that have proven their ability to perform,
both financially and technically in recent weeks and months.
timt@tradingmarkets.com