Role Reversal: Dow and S&P Capitulate, Tech Wrecked; Stock of Day – ExlService (EXLS)

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

It certainly didn’t take long for the market to test critical support levels that I discussed in my weekend report.  Surprisingly, the indices held up quite well at the open despite yesterday’s downward momentum and a Cisco selloff but it didn’t take long for the market to resume the red.  Poor same store sales results got it started and less than positive remarks out of Bernanke sent the market into a tailspin.  The selling intensity was fierce  .. watching a stock like TSL drop 10 bucks in 2 hours was unbelievable.  When you see high quality stocks selling off like that you know that the selling is a bit irrational at least on an intraday basis.  I jumped in to a few positions personally at this point to take advantage of great stocks being thrown out with the bathwater.  This kind of volatility is a day trading dream but it wasn’t without the Tums close by! 

The selling intensity ultimately gave way to what was probably a healthy round of short covering as shorts locked in profits in many of the financial names.  It was a remarkable recovery in both the Dow and S&P which resulted in a short term capitulation day and potentially marks a bottom in the short term which just may be the floor for another holiday market run.  However, the Nasdaq didn’t fare so well.  It did finish well off the lows, but not enough to signal that a bottom is in place over the short term.  Key support of the July highs and the 50 day moving average were both taken out today with all time record volume levels so obviously the dichotomy that existed between the Dow/S&P and Nasdaq is closing a bit. 

This market looks tradeable here on the long side but still on a shorter term basis.  For most, it will probably best to continue to sit on the sidelines until some of the volatility subsides and the market steadies a bit.

::: 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 November 8th 2007

Nasdaq: DOWN 1.92% today with volume 58% ABOVE average
Nasdaq ETF (QQQQ) DOWN 3.04%, volume 188% ABOVE average
Dow: DOWN .25%, with volume 66% ABOVE the average
Dow ETF (DIA): DOWN .67%, with volume 196% ABOVE the average
S&P ETF (SPY): DOWN .51%,  with volume 113% ABOVE the average
Russell Small Cap ETF (IWM): UP .30%, with volume 45% 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. 

Summary:

* Decliners led Advancers 209 to 164
* Advancers were up an average of 2.57% today, with volume 53% ABOVE average
* Decliners were down an average of 3.13% with volume 66% ABOVE average
* The total SI Leading Stocks Index was DOWN .62% today with volume 60% 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):  
Internet Infrastructure, Gold, Gold Miners, Clean Energy, Commodities
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Semis, Internet, Retail, Utilities, Retail, Financial

* Today’s Market Moving Industries/Sectors (UP):
Clean Energy, Utilities, Energy, Banks

* Today’s Market Moving Industries/Sectors (DOWN):
Networking, Technology, Internet (been a very long time since I’ve seen this industries in the big down movers list!)

::: 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.  Today’s stock is ExlService (EXLS), an IPO that debuted last year and broke out of its first base today.

ABOUT: 

ExlService Holdings, Inc. (ExlService Holdings) is a provider of offshore solutions, including business process outsourcing (BPO), research and analytics and advisory services, primarily serving the needs of companies in the banking, financial services and insurance (BFSI) sector, as well as other industry sectors, such as utilities. The Company provides integrated front-, middle- and back-office process outsourcing services and manages processes for its United States-based and United Kingdom-based clients. The BPO services it provides involve the transfer to the Company of select business operations of a client, such as claims processing, finance and accounting and customer service, after which it administers and manages the operations for its client. Its advisory services include risk assessment, documentation and internal controls testing, business process re-engineering and process quality monitoring. On July 1, 2006, the Company acquired Inductis LLC.

FUNDAMENTALS: 

EXLS is a company that has been posting outstanding growth over the past few years and posted its first profitable year in ’04 after posting a loss of 1.75/share in ’02 and a loss of .03/share in ’03.  Since 2004 the company has posted year over year earnings growth of 30% and 104% with another 40 – 50% growth expected here in ’07.  Net margins (14%) and ROE (22%) are very good and have been rising with no debt on the balance sheet.  Clearly a fundamentally sound company.

TECHNICAL:  

The stock broke out from a long cup with handle base today for the first time since going public.  Volume was levels showed good conviction in the move with trading volume coming in at more than 2.5 times the daily average.  With a good up volume to down volume ration over the last few months, tight price action and all time highs within striking distance, this is a stock chart exhibiting very bullish characteristics.

!Important:  EXLS has not yet reported earnings and will do so on November 13th before the market opens.  Just as I do with nearly all companies, I don’t recommend holding EXLS through its earnings report.  It’s just too much of a risk.  While Veraz Networks (VRAZ) is not the same caliber of company that EXLS is just look at what happened to it after reporting earnings on Wednesday.  Wait for EXLS to report and if its not too extended consider a position.

SELFINVESTORS RATING: With a total score of 52/60 (25/30 for fundamentals, 27/30 for technical), ExlService Holdings (EXLS) is a top 10 Self Investors breakout 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 ExlService (EXLS)

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