What I Would Like To See
The major
averages are lacking a sense of direction right now. In reviewing
some of my clients’ portfolios, I took a look at the S&P
500
(
$SPX.X |
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PowerRating) over recent months, for comparison. The S&P
500 gained 3%, then gave it back. There is no real move going on, and I believe
that we will begin to see one when the evidence of accumulations becomes
apparent. Right now, even though the market isn’t going anywhere, with the
recent distribution, it’s a time for caution and the sidelines. When we have a
confirmed rally, it will be a different story. At that time, I also believe that
stocks will start moving out of their consolidations in a much firmer fashion.
To best describe how investing is
reflecting the overall market right now, allow me to take you through the
following illustration.
First off, Mim
Corp
(
MIMS |
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PowerRating) tried to break out of a cup-and-handle base
yesterday. Trade increased above average, but the handle was a little short.
Today, the stock is getting pounded and showing a 16% loss as I write this.
Next, we have a leader from the
all-powerful Homebuilding group: Ryland
(
RYL |
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PowerRating).
This is a stock that recently broke through resistance at 97.80, only to churn
itself for a small gain and then a small loss for the two weeks following the
breakout. Since then, it has managed to push on to a 10% gain
from the pivot of
97.80 over the past two days.Â
In order to achieve this gain, an
investor would have had to accept three factors:
- A choppy initial breakout,
- Distribution following the breakout
(4/15 and 4/17)
and - A market that is under
distribution.
Finally, we go to another recent
breakout that has so far, been able to move through its resistance and stay
there. I am referring to Ameristar Casinos
(
ASCA |
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PowerRating). It rallied to a 10% gain above the ideal buy point, but is
beginning to experience some chop as today saw a brief, intraday decline of 8%
from the high.
To complete my illustration, when the
market is ripe for investment, I believe we will see stocks establish a level
above the pivot point and sit there, without ever giving anything back. After
the brief consolidation, they will again push higher without ever letting an
institution “buy a brief dip in price.”
The first thing I am watching is the
major averages. I would like to see them begin a rally and then confirm it a
week later. Every day, stocks are working through their bases. Following strong
accumulation in the market, I will be identifying the strongest companies that
are establishing these bases. Right now, the market encompasses one of the most
difficult traits to investing: patience.
See you on Thursday,