Stock Market Video 7/20/2012
In this week's Stock Market Video, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo talks about the market's two-steps-forward, one-step-back advance since its early June low, and also opines that, should the rally kick into a higher gear, growth stocks are going to have to lift off (as opposed to the defensive stocks that have led thus far). Stocks mentioned include eBay (EBAY), D.R. Horton (DHI), Lennar (LEN), TransDigm (TDG), Amazon.com (AMZN), LinkedIn (LNKD) and more.
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Mike: 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 continues to repair the damage from a pretty sharp April and May correction. Although not everyone's rowing in the same direction, the market is starting to turn higher. Our market timing indicators are positive, so we do advise sort of a quote leaning bullets position.
Let's jump into the charts and see what we can find. Let's start as always with the NASDAQ. Now the correction here was about 10 or 12%. More than that, though, just FYI, a lot of stocks really topped out in February or March. If you look at something like the small caps, this is the Russell 2000, you can see that its momentum kind of topped out here in early February, hit sort of a minor new high in March. So a lot of stocks in the broad market topped out in February and March. They had pretty sharp corrections as we go back to the NASDAQ, and now they're kind of repairing the damage.
Now you can see, since the low and mid-June, excuse me, and early June, we've kind of had 3 corrections. The first one was pretty short, but, you know, the next 2, including the one that ended last week, they're, you know, 4 to 5% corrections. That's pretty sharp down move in just a few days.
Now each time, obviously, the market has rallied back. In this latest rally this week is a little bit more encouraging. The volume has kicked in here a little bit on the NASDAQ. That's good to see, and some growth stocks seem to be acting just a little bit better as their earning reports come up soon.
So what we're doing right now, like I said, is we're leaning bullets. We're sort of 50% in, 50%, out wholesome strong growth stocks but also hold plenty of cash. That will provide cushion should this rally fail, but also and importantly provide some buying power because at this point, we really don't know what the leaders are going to be if the market does kick into a higher gear.
The reason for that is because so far the leadership has really been things like AT&T, Verizon, Wal-Mart. You can see they're starting to sell off a little bit, which is probably a good sign. Phillip Morris, Johnson & Johnson... I mean look at these charts. They're just going up, and the reason is is because some of these big investors, they're really hiding there.
These are defensive stocks. They pay some dividends, yes, but their businesses are steady. They're growing 5% a year, whatever, 5, 6%, and they're not going to be affected by what goes on in Europe or the latest manufacturing or jobs report here in the US.
So that's what institutions are hiding. What we want to see is not that these... We don't want to see these stocks fall apart, but we really need to see some growth stocks kick into gear. So if you're just going to go fully invested here, I guess you could buy an ETF. But really you're just guessing which stocks going to be the leaders, especially as earning season revs up.
To us it's better to be sort of half in, half out, like I said, have some money on the line and some resilient stocks because there has been enough evidence that some buyers are willing to step up, but don't go hog wild until you start making money.
So some things that we're watching that we like, ok, we mentioned a lot of these before. Now here's eBay (EBAY). This isn't going to be your fastest horse, ok. It's a bigger company. Now they're growing 15 to 20%, but they're doing well, you know. You can see that base earnings gap here. The stock held up generally well during the market, you know, correction/recovery here in recent weeks-a little bit of a failed breakup, a nice earnings gap on Thursday, good volume.
Another one that just took off, Mellanox Technologies, (MLNX). Now this is sort of in the stratosphere. I don't know what you do with it. You could buy a little bit here, I guess, and use a stock, I guess, in the mid-80's, but, you know, it's obviously a little risky up here. It's up to you, but huge volume, huge gap, big numbers earning surprise on the up side. They make chips and equipment for high-speed connections, especially in data centers and whatnot.
Ok, I still think the housing group looks good. So things like Lennar (LEN), now this has been sort of if you just trace it out kind of like the market has been recently, two steps forward, one step back. So it wouldn't surprise me if this pull back goes a little bit deeper and longer and maybe catches up to the 50 day moving average here at some point, but bottom line is on weakness, I think something like a Lennar or a D.R. Horton (DHI), although DR Horton is reporting earnings in a week or two. That looks good. The ITB might be an easier way to play it. That's just your ETF for the homebuilders in general.
Ok, TransDigm (TDG). Ok, now this has had a huge run on the weekly chart, but, again, this latest pull back was on almost no volume. It's really tightened up here, and this is a aerospace company. It looks like it's ready to go higher.
Back on the big cap side, just in terms of setups, you look at an Amazon.com (AMZN). Ok, notice this, we've pointed this out before, this huge base. This latest few weeks here as we go back to the data chart is really its own base, kind of a cup with handle, and I would just note that on Thursday, maybe because of eBay's good reaction, the stock had its first above average volume day either up or down since May 18.
So it's been pretty quite, not a lot of selling going on, just kind of some positioning, and now it looks like some of the buyers may be coming to the fore.
Ok, Apple (AAPL), you're all familiar with Apple. Nice pattern here. Pretty tight in there, and now it's got earnings on Tuesday. It going to come out about 620. It looks pretty good, and LinkedIn (LNKD), of course, we mentioned this before. Notice how this latest base here, it looks a little bit more proper now. It doubled off of its low earlier this year, and now you have a 10 or 11-week structure for the stock to work with. If the stock reports good earnings, which are out in two weeks, I believe-it's in early August-the stock could break out and really get going, but the point here that I'm making is if the market is going to kick in a higher gear, you're going to have some stocks, whether it's a these or some others, really get going on volume.
Ok, you're going to have growth stocks. It's not going to be led by AT&T or Verizon. I got nothing against those stocks, and they could do pretty well, but they've already had pretty good moves, they're not growing that fast, and the chances are that if the market kicks in a higher gear, institutions are going to kind of rotate into where the meat of the action is, which will be among these stocks.
So the bottom line is, lean bullish, keep your eyes open. Earning season is probably going to tell the tales where the rubber will meet the road for the market. If you do see some powerful earning [inaudible], take advantage of them, and then if you start to make money, you can dole even more money out into the market.
That's all the time I have for today. Thanks for listening, and, as always, 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.