In perhaps one of the most volatile years of trading we have seen in a very long time, today’s action was nothing more than a microcosm. It was a jeckyll and hyde kind of day with the market plummeting early on after a big loss from Merrill, a miss from Amazon and like clockwork.. another poor housing number. Given the intensity of the selling volume early on, it looked as if we would end down big.. perhaps bigger than Friday. Inexplicably, the bleeding stopped, support was found and buyers (and short covering) fueled an end of day buying frenzy that nearly wiped away all of the losses. Perhaps the wild volatility is just another clue that major top is being put in, but in the shorter term today’s reversal indicates further strength ahead. Remember: bull markets die hard. I don’t think today’s reversal was strong enough to spring up to test the highs again but we could push back to Dow 14,000 and SP500 1550. However, while short term strength is highly possible from here, I’m still highly recommending caution up here. Do not hold stocks through earnings, do not initiate large positions and absolutely do not use margin.
::: 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 October 24th 2007
Nasdaq: DOWN .88% today with volume 37% ABOVE average
Nasdaq ETF (QQQQ) DOWN .76%, volume 133% ABOVE average
Dow: DOWN .01%, with volume 20% ABOVE the average
Dow ETF (DIA): UP .06%, volume 62% ABOVE the average
S&P ETF (SPY): DOWN .18%, volume 83% ABOVE the average
Russell Small Cap ETF (IWM): DOWN .65%, volume 42% 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 performed about in line with what the Nasdaq did, so weaker than the broad market today.
Summary:
* Decliners led Advancers 240 to 132
* Advancers were up an average of 1.54% today, with volume 21% ABOVE average
* Decliners were down an average of 2.08% with volume 23% ABOVE average
* The total SI Leading Stocks Index was DOWN .8% today with volume 22% 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):
Gold, Internet Infrastructure, Gold Miners, Software, Agriculture
* Current Lagging Sectors/Industries (over last 30 trading days):
Retail, Consumer Discretionary, Homebuilders, Semis
* Today’s Market Moving Industries/Sectors (UP):
Energy, Commodities, Utilities
* Today’s Market Moving Industries/Sectors (DOWN):
Internet, Semis, Broadband, Semis, Networking
::: 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 Intercontinentalexchange (ICE), a highly rated exchange stock (a group that is on the move once again)
ABOUT:
IntercontinentalExchange, Inc. operates as an electronic global futures and over-the-counter (OTC) marketplace for trading an array of energy products. It also operates as a soft commodities exchange. IntercontinentalExchange offer an integrated electronic platform for side-by-side trading of energy products in both futures and OTC markets. Through its electronic trading platform, the Company’s marketplace brings together buyers and sellers of derivative and physical commodities contracts. IntercontinentalExchange also offers open-outcry trading in Board of Trade of the City of New York, Inc (NYBOT) regulated futures and options markets. The Company conducts its OTC business directly and its regulated energy futures business through its wholly owned subsidiary, ICE Futures. It operates in three segments: energy futures, OTC and market data. On January 12, 2007, it acquired NYBOT. In July 2007, the Company acquired ChemConnect, Inc.’s commodity trading business.
FUNDAMENTALS:
IntercontinentalExchange (ICE) is a company that (with the exception of 2003) has posted exceptional growth in each of the past several years. The company posted its first profitable year in 2001 and since that time has posted year over year earnings growth of 125%, -61%, 67%, 140% and 150%. The company isn’t expected to continue that accelerating growth but is still expected to post growth in the 40 – 50% range both this year and next. Not too shabby at all. With net margins at 45% and return on equity at 25% (although has dipped in the past year), it’s clear that ICE continues to exhibit all the characteristics of what I would call a home run stock.
TECHNICAL:
There is no better day than today to feature IntercontinentalExchange (ICE). The stock broke out of a long double bottom base today to new all time highs with good volume behind it. Considering this is a 2nd stage base, this is a stock that has considerable room to run. How far will largely depend on its earnings report tomorrow morning, but I expect the company to once again report excellent results and the stock to continue moving higher even if it dips a bit after earnings. If there is a negative (and you can usually find one!), it’s that the middle peak of the double bottom base is much too high in the formation, making it a bit more prone to failure. To reduce the risk in these kinds of situations, I like to let the stock break out and see how it pulls back. If it breaks out with strong volume, then pulls back with light selling volume, your entry is far less risky than buying at the initial breakout. Sure you may miss it, but who cares. There are plenty of other opportunities out there! ICE is one of my favorites. It’s near the top of my watch list and should certainly be at the top of yours!
SELFINVESTORS RATING: With a total score of 51/60 (27/30 for fundamentals, 24/30 for technical), IntercontinentalExchange (ICE) is a top SelfInvestors breakout candidate.
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 ICE but will consider one after it posts earnings tomorrow.