Not Much To Go On
There just isn’t much to go on out there. We may be working on our second distribution day on the
Nasdaq and the
first on the S&P 500 as I write this.
 
Two distribution days do not warrant a new stance towards
not buying anything, but four or five over a two- or three-week period is.Â
The fact is, there have not been any
breakouts to speak of in this rally. It
becomes more and more apparent, as I mention the same several successful stocks
in this column twice a week. Forest
Labs
(
FRX |
Quote |
Chart |
News |
PowerRating) is one name we are all familiar with by now, but I don’t have
anything new to post because there hasn’t been anything.
Hotels.com
(
ROOM |
Quote |
Chart |
News |
PowerRating) went through a would-be pivot on 11/15
and has still not come up with substantial volume to aid its breakout.
The word that I find lacking in this market is:
CONVICTION. We are just not
seeing the day in, day out accumulation in growth companies that usually
accompany a Bull Market. Unless
we receive the necessary evidence that the market may head lower, I would not
write this market off quite yet because it has had one heck of a rally and
produced a follow-through day. But
just as
Kaltbaum pointed out in his column from the other day, most of the bear market bounces
we have seen have produced pretty amazing rallies that end real fast.Â
Fortunately, if we follow the rules, there’s no reason
to get caught in it. Rule #1 is
in evaluating the status of breakouts. The
easiest and most effective way to do this is simply look at your brokerage
account. Are you up at least 20%
on anything? If you are, then
breakouts are working just fine. If
you’re not, and I know this is the case for me, then the market has not
produced leadership via this rule. The
second step is to follow the price and volume action of the market and major
indices. Evaluate whether or not
we have a confirmed rally in effect, or enough evidence of distribution to
indicate a strong case for lower prices.Â
Many stocks have attempted breaking out, but just as with
ROOM, they have had no volume behind the moves. Covance
(
CVD |
Quote |
Chart |
News |
PowerRating) and Accredo
Health
(
ACDO |
Quote |
Chart |
News |
PowerRating) are two recent examples.
Â
Expedia
(
EXPE |
Quote |
Chart |
News |
PowerRating) was setting up, but had another bout with
distribution today and appears to be losing ground for the short-term.
Thinly traded Scansource
(
SCSC |
Quote |
Chart |
News |
PowerRating)
was not even able to go through its pivot after producing above-average volume
yesterday. It crossed 70.90 and
then closed below it today.
If investors are buying into these attempted breakouts,
then only a partial position should be used until they prove themselves. Until the market provides otherwise, capital preservation is still the
primary goal.
Until Thursday,
Â