Stock Market Video 12/16/2011
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In this week’s Stock Market Video, Cabot Market Letter Editor Mike Cintolo says that the market has a nice rebound this week after two crummy weeks. But he says that not much has changed, as the indexes are still trading within a wide range. Longer-term, Mike remains optimistic. Stocks discussed: BE Aerospace (BEAV), Intel (INTC), Homebuilders (XHB), Macy's (M), Rackspace (RAX), Cabot Oil & Gas (COG), Continental Resources (CLR) and MercadoLibre (MELI).
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--- TRANSCRIPT Stock Market Video 12/02/2011 ---
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Hi, I'm Mike Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader and I'm here with your Cabot Weekly
Review. Well, the market had a nice rebound this week after two pretty crummy weeks before and the question is now where do we stand. In the short term, we really don't think much has change whether it's with this week's bounds or the sell-off of the prior two weeks. We're still within a wide trading range both in the major index as in major stocks. There's not really many new highs out there in the market. There's not really that many new lows either. We're just kind of chopping around.
Longer-term though, we do remain optimistic that the worst of the selling is in the past, more stocks are setting up, more sectors are starting to set up. It's just a matter of being patient, playing the waiting game for the buyers to truly arrive. Let's jump into the charts here. We have quite a few of them for you.
We'll start as we usually do with the Nasdaq composite and if you just, you know, take a step back, you just see, you know, we're just in this wide, trading range, you know, maybe 2,300 or 2,400 in the low end, 2,700 to 2,800 on the high end, but we're just chopping around.
So, even though you're getting these days where the Dow is up 500 and it's down 300, we're really not going anywhere on the net-net basis and frankly it's really not much money being made unless you're a day trader or a swing trader. However, like I said, we are seeing more things resist the downturn especially during this November dip, so let's just clear this up, let's look at the Nasdaq and just notice here, we had two lows here in August.
We had a very similar low here in October and in each of these lows there really wasn't much, you know, everything was on the cutting room floor. There's a lot of damage to be repaired in terms of the charts. Then, we had this sell-off and I know it didn't get all the way back down to where it was in August and October, but it was pretty severe and it was a little bit of a high and low but pretty close, you know, so just keep that pattern in mind but compare it to something like a BE Aerospace, BEAV.
You know, here's a stock that was building a bottom here through October but then a rally and in November, yeah, it took a little bit of price off the stock, but it looks like a normal base building process here, really a cup with handle. Intel, obviously a bellwether for the chips sector. Here's a stock you know, bonds in August, a little bit of a higher in October, and now, even in November sell-off nowhere near its prior low, okay, you know that looks good.
XHB, Homebuilders, again, we're not recommending these stocks, we're just noticing these in terms of the broad market when we're looking at the bunch of charts. You know huge rally in October, early November, it's been chopping around, but just held a 50-day line during this November sell-off and now it's threatening to break out to new recovery highs anyway. Even something as a Macy's, M, obviously in the retail sector.
Now, here's the August low, here's your October low, but then way up here, look at these November lows. I mean, really nothing, no sell-off of any substance. We're seeing more and more charts like this. Not that we would be buying the stocks. They don't have the growth stories that we prefer, but the broad market seems to be resisting a decline. Now, it doesn't mean they're all going to go up, but the way we would put it, like I said before is while in August and October, when we were rallying from those low points, there really wasn't anything set up. It was really just a matter of kind of an oversold balance repairing the damage.
After this November sell-off, there definitely is some merchandise available if the mark can get going. We are still defensive, we have a few lines in the water, we think some selective buying is okay, but we would definitely wait for, A, hopefully the market to get out of this trading range, but I think sooner than that, you're going to see some of the stocks on your watch list whether it's big ones like this or things that you're actually watching that you might buy pop out to new highs, hold those new highs on big volume and then actually advance after that.
Imagine, you know, in other words, create some profits for people who own them as opposed to just chopping around hitting a new high than selling off. I think that's going to be your clue when the market is ready, but I think it's best to wait for that as opposed to guessing it's going to happen because you don't know if it's going to happen, maybe the market sells off or maybe we just chop around for another two or three months.
So, it's really more of a waiting game here, but also staying on top of your game so that you're ready if and when the turn does come. In terms of our watch list, it really hasn't changed that much in the recent weeks which is a good thing. Again, the strong and the resilient stocks are still strong and resilient.
So, some names we like--here's Rackspace, RAX, okay, you can see on the weekly chart, it's not a big run okay, but it had a nice cool, calm and collected 30 percent correction here. It really didn't do anything, again, through October, but again, had that rally and now the November sell-off, yeah, it took some points off there, it had a little bit of a pull back, but looks more like a base building effort.
And again, you know, whereas in October, this stock, you couldn't buy the stock. I mean, it ended up coming up, but it really didn't do anything in terms of breaking to new highs or clearing major resistance. Now the stock is poised to get going if the market can cooperate.
The energy sector looks like one of the leading sectors and I think Cabot and Oil Gas, COG, no relation to us, is probably the leader there. Here you see seven weeks up in a row, right out of the shoot on its weekly chart. On the daily chart, you see it have this pull back pretty sharp during the thanksgiving correction, but a real sharp snap back. And now the stock, it's very volatile, it's chopping around, but this one where I would definitely keep an eye on maybe try to nibble on it if you get some more weakness. But if the market does get going and if energy stocks do lead, I think COG will be one of the leaders.
If you're looking for another name in the group, Continental Resources is a little bit, well, I wouldn't say bigger, but it's another well situated firm, CLR is the symbol.
Again, on the weekly chart notice this seven weeks up in a row. Most of this closes where peak closes on the week, that's a bull sign. Back to the daily, again, the November correction was pretty tame and on low volume for this one.
And last, but not least, MercadoLibre, MELI, again, we'll start with the weekly chart. It had about a 50 percent correction if I remember right, if I did the math correctly. A little bit less that 45 percent and then it had a huge run up here, including a monster volume gap up on earnings. I think it was about 30 percent on earnings. Usually, when you have a base that's that deep, the handover, the consolidation before a potential breakout is usually many weeks.
So, here you can see it on this chart, we're four weeks into it on MercadoLibre. Now, preferably, I would prefer another week or two maybe as we go to the daily chart, maybe in the 80 to 90 range that would be sort of ideal. We'll see what happens. This is definitely a name to watch. It's got a great growth, it's got pretty good sponsorship, and importantly, this huge volume clue that you can see here was on earnings, 30 percent move. I think volume was 700 percent above average and this of course was right after the market low in October. So, this is just sort of the early signs as the price volume action you see in a potential leader going forward.
That's all the time I have for today, thanks for listening. And as always, be sure to come by again next week for another Cabot Weekly Review.
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Vice President of Investments, 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. Cabot Market Letter is one of only nine newsletters included in Hulbert Financial Digest's 2010 Honor Roll for performance in up and down markets, and Timer Digest Top Ten Long-Term Timer.