Following yesterday’s big reversal with heavy volume, it finally looked like this market was ready for a sustained bout of selling. Typically, that kind of downward momentum leads to further deterioration the next day, or at best a flat day. But in yet another surprising surge, the bulls continue to put up a fight. It seems that the market just continues to look for an excuse to push higher. This time around the excuse to buy seemed to be news of some billionare buying in Citigroup and J&J from the likes of Eddie Lampert and Warren Buffett.
Technically, the volume behind today’s move indicated decent conviction, but it wasn’t enough to indicate accumulation or completely render yesterday’s move as meaningless. Based on volume levels over the past couple weeks, the strength of this market continues to weaken. That doesn’t mean it can’t continue to move up a bit longer (after all, the Dow did make another record high and the S&P did reclaim its upward channel), it just means it will pay to be very cautious up here. The extreme volatility over the past several trading sessions indicate instability and I’m certainly not going to make aggressive bets on either side until it settles down.
::: 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 May 16th 2007
Today’s move had volume behind it but not enough to signal a day of accumulation.
Nasdaq: UP .88% today with volume 4% ABOVE average
Nasdaq ETF (QQQQ) UP .98%, volume 34% ABOVE average
Dow: UP 77%, volume 6.5% ABOVE the average
Dow ETF (DIA): UP .75%, volume 59% ABOVE the average
S&P ETF (SPY): UP .68%, volume 6% ABOVE the average
Russell Small Cap ETF (IWM): UP .56%, volume 61% 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 lagged the performance of the leading indices and volume was considerably heavier in down stocks today.
Summary:
* Advancers led Decliners 265 to 162
* Advancers were up an average of 1.57% today, with volume 2% ABOVE average
* Decliners were down an average of 1.42% with volume 16% ABOVE average
* The total SI Leading Stocks Index was UP .44% today with volume 7% ABOVE the 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, Networking, Semis, Aerospace/Defense, Biotech
* Current Lagging Sectors/Industries (over last 30 trading days):
Internet Infrastructure, Miners, Oil
* Today’s Market Moving Industries/Sectors (UP):
Transports, Internet Infrastructure, Health Care Providers, Telecom, Financial, Health Care
* Today’s Market Moving Industries/Sectors (DOWN):
Gold Miners, Gold, Realty, Commodities
::: 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 Panamanian airliner Copa Holdings (CPA) – it broke out of a base today to a new all time high with near record volume.
ABOUT: Copa Holdings, S.A. (Copa Holdings) is a provider of international airline passenger and cargo service. It offers approximately 92 daily scheduled flights among 30 destinations in 20 countries in North, Central and South America and the Caribbean from its Panama City hub. The Company provides passengers with access to flights to more than 120 other destinations through code share arrangements with Continental Airlines, Inc. (Continental), pursuant to which each airline places its name and flight designation code on the other’s flights. On April 22, 2005 the Company acquired AeroRepublica S.A. (AeroRepublica), a Colombian air carrier providing point-to-point service among 12 cities in Colombia and to Panama City. AeroRepublica operated a fleet of seven leased MD-80s and two owned DC-9s. As of December 31, 2005, Copa Holdings fleet consists of 22 Boeing 737-Next Generation aircraft, two Embraer 190 aircraft, 11 MD-80 aircraft and two DC-9 aircraft.
FUNDAMENTALS: After losing money in 2000, Copa Holdings has since reeled off 6 straight years of very impressive earnings growth – 37% in ’01, followed by growth in the following years of 135%, 41%, 21% and 60% last year. In ’07, the company is expected to increase earnings by another 34% so the future contiues to look bright. Net margins are very good and well ahead of the industry average at around 16%, while return on equity (ROE) is an oustanding 43% and rising, If there is a negative, it’s the amount of debt the company carries which is considerably higher than other airliners (however, it has been decreasing over the years).
TECHNICAL: CPA broke out of a cup with handle base today with near record volume to a new all time high. That’s the good news. The bad news is that sell volume in the left side of the base is very heavy. Given the incredible run the stock had last year when it tripled in price, it’s not too suprising to see that kind of sell volume in the left side, but it does lend a little doubt to the success of this breakout. What I did is leave the breakout alone and am looking for a light volume pull back to the 64 – 65 range, essentially make the stock prove to me it can hold this breakout before initiating a position. Despite last year’s run, I believe there is still some room to run in this stock given the fact this is just a second stage base. It won’t triple again, but don’t be suprised to see it move another 20 – 40% over the next year.
SELFINVESTORS RATING: With a total score of 50/60 (27/30 for fundamentals, 23/30 for technical), Copa Holdings (CPA) is an excellent breakout stock opportunity.
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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 Copa Holding (CPA)