Although the session saw early leadership by the NASDAQ Composite ($COMPQ) do an about face, and close off nearly 1% on the session at 1914, the growth-heavy index did manage to keep its recent pivot low intact, which means the rally attempt is alive for the time being…barely. For both growth stock intermediate-term traders and swing-minded players like me, this is an important technical event. Tuesday’s trade was the third day of the ‘rally count.’ What I am looking for during the count is a higher volume, percentage thrust day to occur within four to seven days after the intermediate pivot low is set. This is known as a Follow-Thru-Day, or FTD.
Both the S&P500 ($SPX) and Industrials did breach their respective lows, taking out their own rally attempts in the process. In those two indices the count stands at zero, until a fresh low and a subsequent higher close are established. While this type of market divergence is never a positive, as a growth stock player, my focus is typically bound to the fortunes of the Naz. Traders therefore, should remain diligent about tracking their growth stocks and where they are in relation to their daily and weekly bases. If the recent lows in the NASDAQ are also ‘taken out,” then we’ll look to reestablish the count, if and when it presents itself.
As of the close of trade, distribution statistics remain in favor of the bears over the last three weeks, which should surprise no one after last week’s trade. Tuesday’s action did establish one more such day for the Naz, giving it a total of five sessions of confirmed distribution in the past three weeks versus two days of accumulation. In an up-trending or lateral market this is considered enough to splash cold water over any long side market attempts for growth stock traders. However, within an intermediate downtrend, when a rally attempt low is still in place, traders should be mindful that trends do change, and it typically starts with this type of technical event.
Growth Stock Analysis
The majority of growth issues at this time do appear to be having trouble leading the market, should an FTD occur sometime soon. There are pockets of strength in sectors like the Biotechs (BBH), which have quickly become a market leader, to the Healthcare sector which has provided leadership throughout 2005. The Pharmaceutical sector (PPH) has also recently found a bid and broken above and found support off its 200-Day MA. Select issues from these areas that are demonstrating the right stuff technically and fundamentally might be a good place to look for possible leadership.
As a swing trader who focuses on the market using a combination of technical and some growth stock fundamental analysis, my goal is look for set ups that try to incorporate this philosophy. The following are some of the names that I’m monitoring by incorporating my own tricks of the trade.
The Bulls
Company Name Symbol 12-Month RS / EPS
Kos Pharmaceuticals (KOSP) 94 / 79
D J Orthopedics (DJO) 80 / 96
Gilead Sciences (GILD) 72 / 57
ASV Inc (ASVI) 65 / 95
Faro Technologies (FARO) 79 / 65
Biosite (BSTE) 86 / 99
Symyx Technologies (SMMX) 33 / 98
Gilead Sciences (GILD) is one stock on my bullish watchlist. The biopharmaceutical company released its earnings report and beat analysts’ expectations. Technically, the issue was forming a six month cup and handle pattern coming into the session, and today’s upside action tested handle highs before pulling back. While closing weak, it remained positive on the day, and the intraday retreat might be related more to the broader market action rather than the stock itself. As it stands, the weekly handle is intact, and might be further investigated with traders using their own due diligence.
The Bears
Company Name Symbol 12-Month RS / EPS
Shuffle Master (SHFL) 63 / 97
Boyd Gaming (BYD) 97 / 96
UTI Worldwide (UTIW) 78 / 95
Corporate Executive Brd (EXBD) 72 / 92
Sears Holding (SHLD) 98 / 61
Valero (VLO) 98 / 97
Valero (VLO), from my bearish watchlist is scheduled to report their numbers tomorrow. While the numbers look very strong, and have outperformed the majority of publicly listed companies over the last twelve months based on the stock’s RS and EPS readings—trends do come to an end, as I pointed out in Tuesday’s Market Beat column. From a technical standpoint the issue is putting in what appears to be a right shoulder on the daily chart that would put in the finishing touches on a Head & Shoulder pattern. Combined with the stock looking ‘extended’, based on my own analysis of its weekly base count and overhead Fibonacci resistance, Valero becomes a stock to watch from the bearish side of trade.
Chris Tyler Staff Writer & Trading Strategist Optionetics.com ~ Your Options Education Site
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