The Market Will Signal
The selling
continues. The S&P 500 and 600 are the brightest
spots in the market and that is putting it optimistically! Technology and the
Nasdaq are the weakest spots. Institutions, the primary drivers behind the
movement of stock prices, continue to unload what was hot: technology.
Meanwhile, many of the same funds and institutions are indecisively buying into
many of the small- and mid-cap stocks that we have seen some growth potential
in. The biggest problem with the current market and chances for success in
stocks is that we are just in a very sick market.
As institutions work to unwind their
heavy positions in stocks, prices just go lower and lower, with very little in
the way of a meaningful bounce. Certain stocks have the potential to go to a
price level of $0-3, as millions of shares are being sold. During the 1990s, Worldcom
(
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PowerRating) was an institutional darling. Today, it trades just under $1.
This past Saturday, I spent the
majority of the day on my own “continuing education” in the investment
world. I did it listening to one of my mentors and a person that many of us
respect in the business: William O’Neil. Of course, much of the information
acted as a review, but there were a few points that made the entire day more
than worthwhile. I heard two things while listening to his opinion on the
current state of the market, both of which I agree with. First off, we are in a
bad market right now that needs time for the institutions to unload what they
are stuck in from the rampant market of the 1990s. Secondly, a few growth stocks
that meet the specific criteria I search for have been able to move higher, but
very, very slowly. This is not the market growth investors of the 90s were used
to, where stocks would appreciate very quickly once breaking free of resistance.
Wellpoint
(
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PowerRating) is one such example of a stock that broke out early in the year and
has crept higher over time.
From the defense arena, Lockheed
Martin
(
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PowerRating) managed a breakout in late January and has moved
higher since then.
These two stocks are also
representative of the two strongest sectors the market has to show: Consumer and
defense stocks. Many of these stocks have been seen through the solid
performance in the S&P 600. The biggest problem with making investments into
any stocks right now is that there are so many failures for so few stocks that
actually move higher.
Moving forward, it will be important
to note how firm current leaders act. If the S&P 600 is going to take on a
leadership role, then how it trades on down-days in the Dow and Nasdaq should
reflect strength as we come closer to a solid uptrend in the market.
Additionally, as the market firms up, more and more growth stocks will show
themselves and emerge from solid bases in an effort to move higher.
Right now, only a few stocks are worth
noting. Autozone (
(
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PowerRating) and Advanced
Auto Parts
(
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PowerRating) look to be testing their 50-day moving averages.
Technically, it is important to see how leading stocks act around this moving
average.
DR Horton
(
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PowerRating) is running into trouble as it works through its base.
Few stocks are setting up and it is
all right as the market wades through its correction. While this happens, there
is nothing wrong with protecting capital and staying on the sidelines. When
things are ready to move higher, the market will flash a signal that
institutions are again looking to load up on stocks. Leading averages will begin
to move higher on heavier volume and continue to show
evidence of accumulation. Up days will
come on heavier trade than the previous day and down days will pull back on
lighter trade than the previous day.
I will be back on Thursday with
further details on some of the stocks I have been following through their bases.
Until Then,