By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 10/27/11
The current environment is still not quite there yet. Of course, the major indexes have bounced nicely, but most of the action has been in the off-the-bottom crowd ... the stocks that fell 40% to 50% during the past three to six months like the financials, the transports, the oils, the commodities, the industrials and the semiconductors.
Please don't get me wrong—there is nothing wrong with the rally's strength initially being led by these off-the bottom stocks and sectors. But, in my experience, these names almost always slow down as all the unhappy shareholders who own the stocks at higher prices sell out.
For a real prolonged bull move to develop, we need to see some leadership—stocks with good stories and sponsorship—hit new 52-week highs and, just as importantly, hold those highs and push even higher. That sort of action has been lacking for much of 2011, and I'm still not seeing much of it yet.
That said, it's still early; so much damage was done so quickly during the July-October meltdown that you can't expect new leaders to just surge out of the gate right away. But I would expect new leadership to form within another two or three weeks if this rally is the real McCoy. Today's Europe-inspired surge is a great start, as a few more breakouts emerged.
One name to keep an eye on is
Ulta Salon (ULTA). The stock has admittedly had a huge, huge run during the past couple of years, but it held very well during the market crash and has some of the best price-volume characteristics of any stock.
The company aims to be a national beauty chain of sorts; its 400-plus stores stock a huge array of beauty products, and some of its newer, larger stores also offer hair styling and similar services. The firm has cranked out solid growth for many quarters--sales have risen 20%, 21% and 23% during the past three quarters, while earnings have jumped 41%, 61% and 52% during the same time frame. Long-term, the firm is looking to get to 1,000 stores by expanding about 15% to 20% per year--an aggressive growth plan.
As for the stock, it caught my eye after leaping 14.5% on September 9 following a blowout earnings report; volume on the move was more than five times average! Then, after a dip to its 50-day line during the market plunge earlier this month, the stock found two days of big-volume buying that pushed shares from 59 to 67.
Now ULTA is meandering on low-ish volume; I think it's worth a stab around here, though a move above 73 would be more telling. On the downside, a stop could be placed around 62, so your risk is in check.
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Michael Cintolo
Vice President of Investments and Editor of
Cabot Market Letter and
Cabot Top Ten Trader
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.