Stock Market Video 6/8/2012
In this week's Stock Market Video, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo discusses the current state of the market and the importance of remaining defensive, yet keeping your head up. Featured stocks include Apple (AAPL), Chipotle Mexican Grill (CMG), Equinin (EQIX), Amazon.com (AMZN), Under Armour (UA), SXC Health Solutions (SXCI) and TripAdvisor (TRIP).
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--- Video Transcript ---
[ Music ]
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 finally got off its knees this week and really staged its first solid powerful rally in probably five or six weeks on Wednesday. Now part of that, obviously, was due to some rumors of future fed, you know, quantitative easing and what not but it is what it is.
So the market getting off its knees is a good thing but as we look at the chart of the NASDAQ composite here, you can see that we're still clearly in an intermediate turn down trend. You know the NASDAQ here peaked about the end of April and you can see how we're still in down trend. We use -- we like to look at all the major indexes with their 25 day and their 50 day moving averages.
So this thin reddish line is the 25 day. This black line is the 50 day. You can just see even after the big rally Wednesday and then the gap up on Thursday morning which was eventually reversed. You can just see that, you know, even at that high we were just back up to the declining 25 day moving average. So the market had been pretty stretched to the downside in other words and we sort of had a counter trend rally. Now we'll see how it goes.
Now I'm not discounting what happened. I think it's good that the market can finally show some strength but some of these really beaten down stocks like commodities and industrials have been able to find a little bit of buying. But it's far too soon to say the trend has turned up.
My main message which is kind of similar to what it was a couple weeks ago is right now, you want to be defensive but you also really want to avoid the big picture predictions. If you find yourself saying the market can't do this or you know such and such has to happen for the market to do this or the summer's definitely going to be bad or it's going to be good, you know just don't use those words right now.
There's too many uncertainties. You don't really know what's going to happen in the world. The market doesn't know what's going to happen and just take it day by day and week by week and have it play out. Maybe this is the start of a bottom building process and we, you know we get going later in June and into earnings season into July. Maybe this is a just two or three day rally and we come straight back down because things get worse in the world or maybe, you know, we rally straight up from here and make a -- I mean there's any sort of scenarios.
The point is is that anything really is possible in this environment with so many uncertainties and so much volatility in the market. So just take it day by day. Don't get discouraged or too optimistic and just follow the system.
As far as our indicative that Cabot tides, the intermediate term, we would not only need to see the indexes get above the 25 day but we need to see this 25 day line start to turn up. In other words, the market kind of has to get to a 5 week high. You know it's highest point in about 5 weeks, 25 days and if you look at 5 weeks ago, we're still up here, 5 weeks ago on the NASDAQ.
Long story short, it's going to take a little bit of time for the intermediate term trend to turn up barring some, you know, incredibly powerful rally from here. So just be patient. No move is going is going to end in a day or two. You don't have to catch the bottom but conversely, make sure you keep up your watch list and you're ready for the turn whenever it comes. Whether it's in a couple of weeks or a couple of months or longer, we'll just take it week by week.
Now in terms of your watch list, obviously you want to look at things that are holding up well, good growth stories and what not. Four stocks I think everyone should be watching, partially for potential buying but also mainly for a sign of institutional sentiment is Apple, (APPL).
Okay, you can see the stock's really held up pretty well. I want you to note. See this hit a big low here in mid-May and then while the market hit a lower low last Friday on the Jobs [phonetic] report and really this Monday too it had a little bit of follow through to the downside, you know some of these stocks you can kind of tell have hit higher lows. You can see Apple was about 20 or 30 points higher at its prior low. It's just below its 50 day line.
Okay, now if this can get back above the 50 day on big volume and the market kind of confirms a new uptrend, that would be a good thing to watch.
Chipotle Mexican Grill, (CMG), this is another big leader. It's had a huge run in recent years so I can't say it's near the very top of my watch list but again, it's resilient. A little bit of an ugly reversal with the market yesterday but it's been resilient. It's near the 50 day line. Again, if you get some volume to the upside it'll tell you that institutions are active.
Equinix, (EQIX), you can see this is actually above the 50 day and it's really not that far from new high ground. Okay, so that's acting well. And the last one would be Under Armour, (UA). Same thing as Equinix, it's really holding up well. It almost got out to new highs this week.
The reason I highlight these four is they're all very liquid. They all trade, you know, way over 100 million dollars per day, excuse me of dollar volume. Their institutionally owned. They have growth stories. They're from different industries. You know, Apple obviously is Apple. Equinix is sort of a cloud technology play and then you've got some retail with Chipotle. A different type of retail with Under Armour.
These are really some of the leading growth stocks in the market. They're liquid. They're institutionally owned. So if these things start to fall apart, you know it's probably a good sign that the institutions are not really in buy mode.
Conversely, if the market starts to get going and you see one or two or three of these things really pop out on big volume, that's probably telling you that the game might be back on. Okay?
There's other stocks to watch too. Amazon (AMZN), which obviously is also very liquid. It's just still on this big long basing pattern but we like to look at this, you know, it had a nice earnings gap here but that kind of coincided with the market top. So since then it's been pulling back but the stock's held up well. It's above it's 50 day line and if you actually look at the weekly chart, you can see Amazon's kind of building a nice, tighter, under control base building period here even though the market's kind of falling apart.
SXC Health Solutions, (SXCI), continues to trade well. Again, we'll look at the weekly chart. Again, you know real tight, under control, even though all the hecticness [phonetic] in the market. Part of that might be because the stock's defensive but part of it might be because they had sort of a game changing acquisition of late. So that's one.
And the last one I'll just mention is TripAdvisor, (TRIP). We still like this. It's new. It's a little sloppy in here. It's still trying to get its sea [phonetic] legs but on the weekly chart, it was spun off in December and you can see how the stock's really been at a pretty nice uptrend. It had a big down in February but ever since gapping up on earnings about a month, month and a half ago, you can see the stock's been chopping around wildly but holding up in the 40 to 45 range which is really just what you want to see while the market's in a correction.
Well, that's all the time I have for today. So thanks for listening and be sure to come by again next week for another Cabot Weekly Review.
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.