Stocks Like These Make Good Choices For Mutual Funds

The market flashed more accumulation today
as the indexes closed higher on heavier volume than yesterday.

 

 

The biggest question most
likely going through your mind is in all of the confusing signals the market
has been sending us this month.  On 10/22, we saw the Dow decline to new lows
for the year.  The rally that began in mid-August on the NASDAQ started
without any volume backing the move.  We have seen strong buying trade blows
with strong selling for the past month, and year-to-date, the NASDAQ is
actually down almost 4%.  All of this conflicting information can seriously
affect one’s decision whether or not now is a good time to buy stocks, sell
them or short them.

There are two primary reasons
why I think we are going higher and now is the time to buy stocks rather than
the alternative and I think this discussion will help you unravel the
conflicting information we are seeing.  One thing you must realize is that the
market will always do its best to fool investors or get them to look the other
way before making a move.  When something becomes obvious in the
market, it almost certainly will not occur right away.  I attribute much of
the conflicting information mentioned above as the market’s way of weeding out
many participants.  The real information I look at are price and volume
action of the market followed closely by the leadership traits stocks and
sectors exhibit.  The NASDAQ formed a recent bottom in mid-August and is
now trading just under its 200-day moving average after two attempts to get
above this key area of resistance.  After two attempts, there is a strong
likelihood that a third try will offer success as it has in the past.  Without
getting too technical, we saw the exact opposite en route to the mid-August
bottom as the index took three tries to break below the 200-day moving average
as the index corrected from the 2003 rally.  Price and volume are positive and
a break above the 200-day moving average will prove this.  Unfortunately for
investors, the move may be swift and not offer much entry close to where we
currently stand.

 

 

The semiconductors (SMH)
have been a leading indicator for the market since the October, 2002 bottom. 
The sector is still far from one to buy, but it has held both its
early-September low and the 50-day moving average despite any recent market
weakness.  We also have very strong leadership out of a broad group of stocks
and sectors, ranging from oil to steel, and telecom to internet as well as
retail.  A healthy market needs leadership and strength in growth stocks to
move higher and this is what we have.  Stocks like MBT and Vimpel

(
VIP |
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PowerRating) and Travelzoo
(
TZOO |
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out of price bases early in this rally, and have found support at their
respective 50-day moving averages.

 

 

Support indicates
institutional dollars’ continued interest into these names offering new and
innovative products and services to handle an improving economy.  We are also
seeing very good strength out of internet names at or near new all-time
highs.  Ebay
(
EBAY |
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(
GOOG |
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PowerRating) come to mind.

 

 

As I mentioned, there is a
broad group of leadership in this market and stocks like Starbucks
(
SBUX |
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PowerRating)
offer very strong choices for mutual fund dollars as they continue to grow
earnings and sales at extremely high levels.

 

 

In the end of this
discussion, there is very strong support for higher prices in the stock market
over the next few months to year.  Immediately, we may churn for the next week
or two; but elections are only a week away and they will give the market a
very good reason to move higher with the elimination of uncertainty
surrounding the event. 

 Tim Truebenbach