Until Now, These Two Profit Sources Have Been A Rare Sight
Caution
and observation. These are
two extremely important aspects of the current state of the market right now.
We have already run the same course as most of the bear-market bounces
we have seen over the past several years, in the rally that began in
mid-March. We have also seen some
distribution creep in to the market, but not enough to run for cover.
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Our leading index, the Nasdaq
(
$COMPX.X |
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PowerRating) has posted three distribution days in the past 10
trading days. This falls short of the
requirement to avoid new purchases and force us into a defensive stance.
The market is at a pivotal stage right now.
It would be ideal to see it rally on heavier volume and face declines
on lighter trade.Â
There are many individual
names that are poised to rip higher if the market can stay strong.
One of our holdings in the Service,
University of Phoenix
(
UOPX |
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PowerRating), is
acting very well. We saw an initial
move on heavy volume and good follow-through. It
is consolidating those gains while the market makes its next move.
New
Century Financial
(
NCEN |
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PowerRating) attempted to break out on heavy trade
while the market was under selling pressure on Monday.
This produced a choppy breakout, but the strength appears to be there
for now.
 
A healthy market can yield
very good profits from two sources: stocks continuing their moves higher after
already breaking through resistance and stocks breaking out from fresh
consolidations. We have both scenarios
right now. This is a rare sight in the
past three years. Pacific
Sunwear
(
PSUN |
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PowerRating) is the latter as it is working through a
handle on its base that stretched back to February of 2001.
 
In addition to observing the
overall market, it is important to keep a close on the action of leading
groups. Internet stocks have led most
of the recent rally. Keep an eye
on Internet service providers, e-commerce and content providers.
It’s not a good sign when we see a stock like Yahoo!
(
YHOO |
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PowerRating) take it on the chin from analyst downgrades.
Ebay
(
EBAY |
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PowerRating) represents the e-commerce group and has led most of the way for
this industry group.Â
Use caution when making new
purchases and be sure to have stop prices in mind, or where you plan on taking
a loss if the stock declines. Keep an
eye out for price and volume clues in the major indices, leading sectors,
groups and stocks.
Until Thursday,
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