Keep Those Eyes Peeled
For traders who
have been at this a long time, I
can only say that this market is giving no obvious signals to get in or out — as was the case in March 2000, or the fall of 1998. For newer traders,
this is a very challenging market that thrives on discouragement and weeding out
participants. One comment to encourage anyone playing the market right now is
that this is a challenge that tests one’s true fortitude. “What cannot kill
me can only make me stronger.” There are lessons to be learned right now
that will make us all better at what we do, and it is each person’s decision on
whether or not to rise to the challenge.
The wrong things began working and the
right things have not. Since the end of May, mostly any stock setting up in
whatever looks like a base has been breaking out of it. Over the past two weeks,
the breakouts have gotten less and less past their pivot prices before falling
apart and failing. Now fewer and fewer stocks are setting up in attempts to
break out. Not to be too blunt, but the ultimate confirmation of a bull market:
leading companies breaking out of sound bases and succeeding to new highs…is
failing to work.
The major averages have posted
occasional days of distribution, the most recent being 5/29,
5/30 and yesterday (6/11)
on the S&P 500, not enough of a reason alone to jump into cash or
stop looking for new purchases.
When taking a look at the major
indices’ lack of accumulation and the failure of recent breakouts, one is
inclined to carefully evaluate or avoid new purchases. Factset
(
FDS |
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PowerRating), Planar
Systems
(
PLNR |
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PowerRating) and Nautica Enterprises
(
NAUT |
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PowerRating) are all victims of the
choppy market. These stocks and others have all been very difficult to gauge,
because they have not shown obvious sell signals unless looked at collectively.
Most of them have followed with the same action of selling off very hard and
hitting stops wherever they have been placed.
The remaining positive is the
stability of the market’s recent leaders. Columbia Sportswear
(
COLM |
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PowerRating),
Krispy Kreme Doughnuts
(
KKD |
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PowerRating), TRC Companies
(
TRR |
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(
ACF |
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and a very few others have hung in there, well above their pivot points.
Unfortunately, this does not say much other than when they eventually fall, you
will have final confirmation that this rally failed. Market leaders are
naturally the last stocks to fall in a bad market environment. Americredit is
seeing some strong selling today and it will be interesting to see if it can close
off the lows.
Retail leader Christopher Banks
(
CHBS |
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has been battling it out at its 50-day and has not been able to hold above it.
Coach
(
COH |
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possibly breaking out with the rest of its Retail brethren in retreat. An old
favorite from the past shows signs of life in Ebay
(
EBAY |
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PowerRating), as it works on
the handle of a 37-week base. The daily chart on this one is deceiving because
it is a low-level breakout with an all-time high around 120 and resistance on
the way up through the current pivot of 66.46.
Semiconductor-Equipment stock Entegris
(
ENTG |
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PowerRating) holds above its pivot on light trade. The stock has shown resilience
among the small-caps although it has two fundamental flaws that could haunt it
in a weak market: declining quarterly EPS and a tiny annual growth rate of only
5%.
Keith Companies
(
TKCL |
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PowerRating) was
working its way nicely up the right side of its base until today. Otherwise,
this company is about as fundamentally strong as they come. IDEC Pharmaceuticals
(
IDPH |
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PowerRating) is forming a loose handle on a 25-week base.
Moving forward, be careful but it is
also a good time for us to keep the eyes peeled. Despite all of the negatives,
the market has yet to show consistent signs that institutions are rushing for
the exits. Market leadership could emerge and stocks could use this time to form
proper bases from which to break out of. Protect profits wherever they exist by
following sound selling rules and use disciplined money management if entering
any new positions, e.g., stocks do not seem to need a full 7% or 8% right now
before realizing it’s not working.
See you again on Thursday as this
column steps up to twice a week!