Stock Market Video 6/22/2012

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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 Thursday's recent correction. Featured stocks include: SXC Health Solutions (SXCI), Under Armour (UA), Apple (AAPL), Chipotle Mexican Grill (CMG), (AMZN), TripAdvisor (TRIP) and eBay Inc. (EBAY‎).


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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 was making some real definitive progress on the upside earlier this week and really late last week but there's no question that Thursday's huge decline on a pickup and volume looks a little bit abnormal. Now I want to jump right into the charts 'cause we've got quite a few tidbits, things to go over here.

So as we, you know, start here normally with NASDAQ composite and I guess, you know, my first thought is, I'm definitely not going to undersell the ugliness of Thursday's decline. When you [inaudible] get a market that begins to rally after a pretty decent sized correction, for it to get up to this 50 day moving average, which is thin black line and just get totally rejected on the downside, it's just abnormal.

Now, with that said, I wouldn't go so far as to say that means we're definitely, you know, going to go straight down from here or that it's a good buying opportunity. I'll get, I'll get to that in a second. I wouldn't make any big picture predictions but there's no question just taking the evidence as it is today, that sort of action just right up to the 50 day for a day or two and then a quick rejection is negative.

Now we actually got an intermediate term bi-signal this week 'cause the 25 day actually ticked higher, started to turn up, which produces a bi-signal and you know, if you are a subscriber and you're wondering, hey is something wrong with the indicator?

The answer is nothing's wrong with the trend following indicator, whipsaws are part of the game. Now they're never fun but really the, the price of business, you know, the price you pay is the occasional whipsaw where a bi-signal or a sales signal will be reversed in exchange for never missing a major up move, never missing a major down move.

But I've actually put the last couple of signals here from our intermediate term system, you know, we had a bi here in late December, early January and then we had a sale here in early April. Those were pretty good signals but of course not every indicator -- I mean no indicator's perfect, not every signal's going to work.

Technically right now, this indicator is still positive 'cause it's -- the index is above the 25 day. But, again, the action never really got going there and the rejection at the 50 day is a bit negative.

Now back to the current market, what I did want to sort of point out is that if you just look at the NASDAQ, really at this point, for the last couple of months, the majority of the action has been within a trading range. Now I could even make this a little bit bigger. There was a little bit of a shakeout on the bad jobs report on June 5. There was a little bit of a suck in here, rally during the last few days obviously. But for the most part, the last couple of months, the action has been sort of in the, you know, 27 to 2900 range, even a little bit tighter than that.

And so, like I was saying before, you still want to avoid really drawing too much conclusions. You know, I heard from a lot of people yesterday, saying hey, this is, you know, resuming the downtrend or whatever. It could be, I'm definitely not ruling that out. Again, Thursday was -- I would consider it abnormal action but there's still so much going on out there with the fed in Europe, obviously earning season is coming up quick. You know, economic reports here in the U.S., that kind of did the, the damage yesterday. I think it's just a matter of just taking it day by day, week by week.

Right now, I think it's safe to say the environment is not conducive to be bullish, it's basically saying, we're not ready yet. Now whether that means it will be ready in a week or two weeks or two months, nobody knows. But just right now, it's still good to have plenty of cash on the sideline. If you have taken a couple steps into the market, it's okay to back away or at least keep those stocks on tight leashes.

Now in terms of individual stocks, another tidbit I wanted to say, if you're not doing this tactic, you really should. When a market starts to get going like we've seen here, you want to keep an eye on stocks that are on your watch list, even if you're not buying them. And look at the stocks that are breaking out and just how they act.

So here's Cerner Corporation, (CERN), great numbers, nice story, nice resilience during the correction. And you can see here, it broke out a couple of days ago, big volume. It looked good but really it didn't make that much progress, which is okay. I mean it's only been a couple of days but then you just see, you know, on the third day, the second day after the breakup, but the third day out of the base, you can see the stock just really has an abnormal dip. This was actually before, this was on Wednesday. This was before the Thursday meltdown so this -- that sort of action is a little bit abnormal.

Here's SXC Health Solutions (SXCI), another one, you know, nice base, nice resilience, tried to break out, never really got going. In fact, it reversed on the day it hit new highs and really fell back into its base. That sort of action is just sort of telling you that when stocks are getting new highs, they're meeting with more sellers than buyers, people are trying to get out at a good price, as opposed to, you know, Fidelity and T. Rowe Price and Janice and all those guys are really buying the stocks to get in the leaders.

Now Under Armour, (UA), is another example, it never really had a powerful breakup but you can see the stock was resilient, it actually moved out to new highs, ahead of the market. But then on Thursday, partly it was the market, but it was really just a downgrade, it wasn't an earnings news or anything but just a huge volume decline, back into its base, back down to the 50 day moving average.

Now I'm not saying all these stocks are ready for, you know, a 20 or 30% decline, but the point is, is that when the market starts to get going, you want to -- even if you're not buying them, you want to be watching some stocks that are you on your watch list, when they break out and if two or three of them start to really get going and produce profits, that's going to add to your conviction that the market's in a good, you know, uptrend. It never really kicked into gear, at least it hasn't to this point, which is a sign to go slow.

Now if there is a saving grace back to the current market, about Thursday's action is a lot of stocks really didn't change their position. It wasn't like, you know, a lot of things all of a sudden hit new lows or there was a ton of stocks that were doing this, you know, there weren't that many breakouts to begin with. You know, if you just look at Apple (AAPL), okay, the stock is down but really it's just sort of in no man's land, it's still building this sort of basing structure. It looks to me like it's need more time, now maybe it, you know, maybe it has another leg down, maybe it just stops here and goes up, I have no idea. But at this point, the evidence is just kind of in no man's land.

Chipotle Mexican Grill (CMG), same sort of thing, nothing decisive has really happened this week, you know, a little bit of accumulation, no real distribution. It's just kind of in the middle of its basing structure. The bottom line is, there's still a lot of stocks out there that are in basing processes and even though there's been some wild moves up and down this week and you might feel encouraged or now discouraged, the point is, is not really that much has changed. The environment isn't ripe yet and you should be keeping up a watch list.

Some names we do like, okay, another big cap stock, here's (AMZN), just want to show you the weekly chart. I think I've shown this before but notice how after this big earnings gap here a few weeks ago, the stock has been very calm, cool and collected, even during all this mess overseas and whatnot. And you know, again, the stock, yeah, it's in the last couple of days but not big accumulation or distribution. It's just kind of base building, it's coming out of the public's eye, it's not being talked about, that's sort of necessary.

On the smaller side of things, TripAdvisor (TRIP), we still like. It's obviously a choppy performer but it's still between 40 and 46. Okay, on the weekly chart, you can kind of see it better, how it's just sort of range bound and range bound has been good in this environment in general. Looking ahead, you know, a break of a 46 on big volume and follow through would be, you know, would be key and encouraging.

Dunkin' Brands, (DNKN) and now this is one breakout that kind of, you know, did work. I wouldn't say it, you know, made anyone rich of course, but you can see it broke out. It did come back in on heavy volume during Thursday's down move, but overall, it's acting well. It might need some time here with the market but overall, that's one you want to watch.

Monster Beverage, (MNST) this has been trading a little bit out of trend with the market, which, you know, might not make it the best candidate. But I can't ignore its resilience, it hasn't even closed below its 25 day line since January, which is amazing. The stock here has come in this week, a little bit of distribution but still holding very well, so that's definitely one to watch.

And back on the big cap side of things, eBay Inc. (EBAY‎), now here was another breakout. Again, didn't make much progress. But down here on the volume, great volume on the breakout, three good days of volume on an eBay, means a lot of institutions are active. And so far, there really hasn't been much selling. Now I mean, I'm not saying this stock is going straight up from here but overall, the pattern looks sound, like the market might just need time. And maybe it builds sort of a higher shelf here over the next few week.

The bottom line is, like I said, the market environment's not ripe yet but you shouldn't be sticking your head in the sand, you shouldn't be getting back into the headlines. Just stick to the market action, keep your watch list up and if and when the market gets going, you'll be ready to participate.

Well, that's all the time I have for today. 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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