Stock Market Video 4/27/2012

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In this week's Stock Market Video, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo says that after a rough start to the week, the market and leading stocks have bounced back nicely. Stocks discussed: PulteGroup (PHM), Ryland Group (RYL), Lennar (LEN), Continental Resources (CLR), Pioneer Natural Resources (PXD), CF Industries (CF), GNC Holdings (GNC), Dunkin Brands (DNKN) and LinkedIn (LNKD).


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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, after a rough start to the week, the market and leading stocks have bounced back nicely, and while we can't quite say definitively that the correction is over, we definitely do like what we see, and we're hopeful that the worst is in the past. But I want to jump right into the charts. And if you remember, if you listened to last week's video, this is the NASDAQ composite, which we usually start with. I talked about the three phrases of a correction, or at least the three psychological phases, which is first, complacency, nobody really believes it's a correction. The second phase is realization, where they say hey, something is up. And then the third phase is panic. 

Now, I'm not trying to overstate this. This was a mild correction within a major bull trend, so this isn't like a bear market panic sort of thing. But I do think on Monday, when we came in and there was some Europe woes, and you can see here the NASDAQ gapped below, you know, its prior low of this corrections. A lot of the other indexes did the same thing, gapped to new lows. That had some panic. 

And then Tuesday, although the indexes were -- and the NASDAQ was down a little bit as you can see. Some of the other indexes were actually up, but growth stocks were absolutely slaughtered on Tuesday, and it didn't matter, you know, what sector. It could have been retail. It could have been technology, you know, cloud computing, whatever. If it was a growth stock with a high multiple and fast growth, the stock was really hit hard on Tuesday. And I even heard a couple of calls from subscribers saying hey, is this the start of new bear market sort of thing? So I do think we did get to that panic stage, and that probably is going to pave the way for higher prices, but in fairness, you know, we do have indicators here. 

Now, the NASDAQ, you can see, is -- this black line is the 50-day moving average. The NASDAQ is above its 50-day, as is the S&P 500, but a lot of the other indexes, like, here's the S&P 600, you can see it's above it, but just by a hair. Here's the New York composite, New York Stock Exchange composite, same thing. It's above it but just by a hair. So you know, if the market fell for day or even for a morning, it would be back below. So we can't say that the intermediate-term trend is truly back up, but it does look kind of neutral, anyway, as opposed to negative. And like I said, just putting the pieces together, we are optimistic that the worst is probably in the past, and you know, the earnings season for the next couple of weeks could tell the tale. 

Now, in terms of your stance, you know, how do you -- what do you do? Well, it's still technically a yellow light, but you might want to lean a little bullish. And I think it really depends on where you are in your portfolio. If you had, for some reason or another, sold a ton of stocks, either willingly or you just happened to get stopped out of a bunch of stocks during the correction, yeah, you could probably put some money back to work. 

If, on the other hand, you really held on to most things and you're still in a pretty good position, I don't think you have to rush back in and chase stocks. I still don't think it's a -- you know, this isn't going to go back, likely, to being a January, February, March-type of environment that's straight up, even if the correction is over. So you know, I don't think it's just a matter of throwing money at anything that's going up here. You still have to be selective. You still want to be pretty discerning, but leaning bullish seems like the right thing to do. 

Now, in terms of what stocks and sectors to look at, you want to -- you know, we talked in the past about tennis balls and eggs. You want to look for stocks that bounce like a tennis ball as opposed to just break on the floor like an egg and sit there. That's true, but you also want to find some things that have built some sort of shelf or consolidation and hopefully are out of the public's eye. So I'm just going to mention housing stocks. 

Now, this is Pulte Homes. This is a lower-priced stock, but it's very liquid. It's a very big company. I think it's the second largest homebuilder. And you can just see here on the daily chart, you know, the stock really didn't do anything from about early February. It started to get going, then came back down early February to mid-April here, and then it just reported earnings yesterday, and you can see the stock reacted favorably. On the weekly chart, you can kind of get a better flavor of it. I mean, look at this huge volume, eight-week run -- I think it was an eight-week run down here. But really, since then, it's been chopping around, chopping around, dove below the 50-day moving average, and it's the same with a lot of homebuilders. 

Okay, here's Ryland, RYL, again, big reaction to earnings yesterday, to new highs. Lennar, I think is still the leader. That one has been stronger, but even this one, it held the 50-day and now is bouncing back. So this is a type of group that's come off of most people's radar screens or anyone that bought really recently, say in late March, mid-March, they probably were worn out or shaken out by the market and by the individual stock's action. So that is one group to keep an eye on. 

I'll just mention the HXB. This is sort of the ETF for the broad housing sector, not just homebuilders, but housing related stuff. And it's the same sort of thing. You know, it rallied up here into early February. It did go to new highs, but it came kind of right back down to where it was. So it really hasn't done all that much in two or three months, which could have paved the way here for higher prices if earnings reports continued to be well received. 

Commodities, we're seeing some pretty good setups, believe it or not. Now, they sat out the rally, so I'm not going to pound the table on any of these, but again, here's Continental Resources. This one actually did not sit out the rally. It had a nice breakout in January, a pretty good up move, and you can just see a nice, calm, low-volume pullback. And of course, everyone who owns it or bought it high has been shaken out. But now the stock is starting to come to life as we look at the daily chart back through the 50-day. They do have earnings next week, which will be key. 

Pioneer Natural Resources, PXD, I think I've mentioned this before. Let's start with the weekly chart. Again, you can see this nice, multi-month base. Nobody is talking about it. It's off people's radar screens. That's good. The growth, though, is huge, and then right here, it really came through the 50-day line on, I believe, that was Wednesday. It was its second heaviest volume day of the year. Really, its second-heaviest volume day since last November, so there is a lot of accumulation there. 

And then CF Industries is a fertilizer. Again, we'll go to the weekly, and you can just see how tight and calm it's been here for a couple of months. Didn't participate with the market, which isn't good, and that's why you shouldn't have owned it in the last couple of months, but that base-building phase is still there, and if the stock can get up and going, it would be good. All three of these commodity stocks, I believe, report earnings next week, so that is something you're going to watch for. And of course, there's still to choose from in growth stock plan. 

GNC Holdings had a great gap up on earnings. Now, like I said, I don't think it's a go-go environment yet, and even if the market does get going, I'm not sure it's going to be a true go-go environment, so I'm not sure you should be throwing a ton of money at things that are sticking straight up in the air, and especially with a stock like GNC, which tends to trend as opposed to really soar. But it was a great report. The earnings estimates are way up, and my guess is down a point or two, you could start a position and see what happens. It's not that volatile of a stock. That's been doing well. 

Dunkin' Brands is another one. I want to start with the weekly chart. Kind of calm, cool, and collected. It's not going to double overnight or anything, but the stock had a nice IPO base, really tightened up. It's already had a couple of secondaries, so those are out of the way. And then the earnings came out better than expected. You can see it's sort of challenging new highs here, so that's one to keep an eye on. 

And then last, but not least, which is a go-go stock, would be LinkedIn. Also you can just see in the big picture, it's had a big, big, big IPO base, what they call an IPO base. Many months it's been kind of flopping around in this range, but you know, there's been a lot of strength here in the last couple of months. If you look down here with the volume, a lot of, you know, what we call big, blue bars. There's big, blue sticks, lots of buying, institutional buying. It's a very liquid, well-traded stock. And here, during the correction, the stock held its 50-day moving average. Granted, it's volatile. It's all over the place. We'd like to see it tighten up; don't get me wrong, but the stock has really been resilient. And my guess is, if it can calm down, and if earnings, which I believe are out in a couple of weeks, are well received, you could see this come out above 110 and really make a run. 

Well, that's all the time I have for today. As always, thanks for listening and be sure to come by again next week for another Cabot Weekly Review.


Mike CintoloMichael Cintolo
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.

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