A Classic “Sell the News” Result to Fed Rate Cut; Stock of Day – Synchronoss Technologies (SNCR)

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Today’s somewhat dramatic sell off should not have been too much of a surprise (ok I suppose the small chance of a 50 bp would have produced a different result) so I hope EVERYONE profited accordingly.  The market sells off with heavy volume, rises to overbought conditions (more than I expected) with diminishing buy volume as the market prices in the 25 bp cut and sells off on the news and sells BIG.  In a divergence from most of the action of 2007, the market actually moved in the direction it was forecasting for once.  It does feel good to be positioned correctly and profit in a down day like this doesn’t it?

So now what?  Well .. we wait.  Remember that the first reaction to a Fed announcement is often times a false move, so it’s going to take a day or two for the Fed rate cut dust to settle and get a true sense of the technical picture. 

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day December 11th 2007

Nasdaq: DOWN 2.45% today with volume 1% ABOVE average
Nasdaq ETF (QQQQ) DOWN 2.32%, volume 3% BELOW average
Dow: DOWN 2.14%, with volume 14% ABOVE the average
Dow ETF (DIA): DOWN 2.18%, with volume 32% ABOVE the average
S&P ETF (SPY): DOWN 2.74%,  with volume 23% ABOVE the average
Russell Small Cap ETF (IWM): DOWN 3.51%, with volume 37% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks were hit harder than the major indices today but not as hard as the small caps that make up the Russell 2000.  If there is a bright spot today, it’s that volume wasn’t overwhelming on the sell side.
Summary:

* Decliners led Advancers 278 to 30
* Advancers were up an average of 1.56% today, with volume 62% ABOVE average
* Decliners were down an average of 3.51% with volume at the average
* The total SI Leading Stocks Index was DOWN 3.02% today with volume 6% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Dynamic Utilities, Pharma, Commodities, Energy, Basic Materials, Agriculture
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Networking, Retail, Semis, Nuclear Energy, Telecom

* Today’s Market Moving Industries/Sectors (UP):
Bonds & Telecom

* Today’s Market Moving Industries/Sectors (DOWN):
Home Construction, Realty, Financials

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Despite a day where few leading stocks rose with volume, Synchronoss Technologies (SNCR) surged above its 50 day moving average with volume and is today’s Stock of the Day.

ABOUT: 

Synchronoss Technologies, Inc. (Synchronoss) is a provider of on-demand, multi-channel transaction management solutions to communications service providers (CSPs). The Company has designed its solution to be flexible across communication services and channels (such as e-commerce, CSP stores and other retail outlets), allowing it to meet the changing and converging services offered by CSPs. Synchronoss targets complex and high-growth markets, including wireless, high-speed access (such as cable, digital subscriber line (DSL) and Wi-Max), voice over Internet protocol (VoIP), video and also target CSPG’s bundling of these services (double, triple and quadruple plays) and their intersection (video over wireless, Internet protocol television (IPTV), content activation). The Company’s ActivationNow platform automates, synchronizes and simplifies electronic order management, activation and provisioning of these services.

FUNDAMENTALS: 

Synchronoss (SNCR) is a company that grew rapidly at the beginning of the 21st century but didn’t turn it’s first profitable year until 2005 when it earned .31/share.  The company hit a brief rough patch in the middle of ’06 when it posted 2 consecutive quarters of negative growth.  However, over the past year, the company has begun firing on all cylinders and has posted accelerating earnings and sales growth in each of the past 4 quarters.  That kind of growth has led to ’07 estimates of more than a doubling of profits over ’06.  With net margins around 20%, ROE around 20% and management ownership hovering around 35%, SNCR has ALL of the components of a Self Investors leading company.

TECHNICAL:  

I typically feature leading stocks that are near a breakout or have already broken out of a sound basing pattern, but SNCR is a bit early in the formation process.  The stock spent most of October and November digesting gains after a long runup in which the stock soared more than 500% in just over a year.  A remarkable run.  This is the first significant base for the stock since going public in the summer of 2006, so there is quite a bit of room left to run.  Currently, it’s carving out a cup base with the bottom of the base finding support right at the 200 day moving average.  Sell volume has begun to dry up and buyers are beginning to exert some control again.  Today, it was up more than 10% at one point before it sold off after the Fed rate cut, leading to a high volume reversal on the daily chart.  This kind of action typically indicates the stock will need to at the very least spend some time sideways and at worst retest the lows of the base.  Either way, you want to see the stock carve out a nice looking handle formation with quiet volume, then result in a big breakout above today’s high (42.58).  It’s probably at least a week or two away from attempting a breakout, but SNCR is without a doubt one leading stock you’ll want to put at the top of your watch list.

SELFINVESTORS RATING: With a total score of 51/60 (27/30 for fundamentals, 24/30 for technical), Synchronoss (SNCR) is a highly rated Self Investors leading stock.

Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently do not own a position in Synchronoss Technologies (SNCR)

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