::: Today’s Market Action :::
So the Fed removed "additional firming" in its statement today and traders felt that was enough to put the possibility of a rate hike a bit further on the back burner. Considering that the Fed still remains concerned about inflation I was surprised by today’s big move up (undoubtedly fueled by short covering). There’s some chatter out there that the correction is over and bulls are set to run again. Moves like this can create that kind of irrational euphoria. While this move sets up the potential for a run to fill the gap in the Nasdaq and "potentially" test the highs in the S&P and Dow, I strongly disagree that the indices are going to clear V like bases and head to new highs anytime soon. There is significant technical damage to work through yet. Obviously, my bias to the short side hasn’t played out well over the past couple days, but I’m not about to panic here and abandon my positions. Remember that the knee jerk reaction to the Fed can often be thrown out the window. What’s important is how the market reacts tomorrow and Friday once traders have had time to analyze the statement and make decisions about their positions.
In the chart of the Nasdaq below you can see today’s surge above resistance of the 50 day moving average. It may have enough momentum to fill the gap left by the big sell off on Feb 27th, but I don’t think it gets that far. Following the key reversal, the move up has come with volume considerably less than during the sell off. I still feel that at some point the Nasdaq will at least come close to testing the lows of that reversal day and possibly the 200 day moving average before it’s all said and done. Look for a continuation of the momentum tomorrow morning, but the key will be how we close tomorrow.
The S&P is the strongest of the major indices and made a meaningful move above resistance of the 50 day moving average today. While much of today’s move was likely short covering, volume levels were significant enough to call the action an accumulation day (institutional buying). That’s a real sharp move off the bottom but the next level of resistance is at previous February highs. It could test this level. Keep the big picture in mind though – sell volume overshadows buy volume by a significant margin.
The Dow did not clear resistance of the 50 day moving average today. It too could run up a bit more, but the underlying trend still remains bearish. Before today’s move, the buy volume has been anemic.
Overall, based on the technical action of the past few weeks, it’s highly possible that the key reversal on March 14th marked a bottom (or close to) for this correction. What I want to see now before getting into a few more long positions is sell volume dry up on a pull back following this 6 day run. If the market runs up again tomorrow and the volume isn’t there, it would be an ideal time to put on another short or two.
::: 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 March 21st 2007
Nasdaq: UP 1.98% today with volume 9% ABOVE average
Nasdaq ETF (QQQQ) UP 1.93%, volume 31% ABOVE average
Dow: UP 1.30%, volume 12% ABOVE the average
Dow ETF (DIA): UP 1.20%, volume 2% ABOVE the average
S&P ETF (SPY): UP 1.65%, volume 69% ABOVE the average
Russell Small Cap ETF (IWM): UP 1.90%, volume 30% 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 the rest of the market today but volume continues to lag in the advancers.
Summary:
* Advancers led Decliners 389 to 44.
* Advancers were up an average of 2.27% today, with volume 3% BELOW average
* Decliners were down an average of 1.38% with volume 73% ABOVE average
* The total SI Leading Stocks Index was UP 1.90% today with volume 4% 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/industry_tracking/
* Current Leading Sectors/Industries (over last 30 trading days):
Utilities, Bonds, Consumer Services, Energy
* Current Lagging Sectors/Industries (over last 30 trading days):
Biotech, Home Builders, Agriculture
* Today’s Market Moving Industries/Sectors (UP):
Home Builders, Broker/Dealers, Software, Financial, Internet
* Today’s Market Moving Industries/Sectors (DOWN):
None
::: 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 a top retailer that recently gapped up out of a long base to a new all time high – Zumiez (ZUMZ)
ABOUT: Zumiez Inc. (Zumiez) is a mall-based specialty retailer of action sports-related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of January 28, 2006, the Company operated 174 stores primarily located in shopping malls, giving it a presence in 19 states. Zumiez stores cater to young men and women between the ages of 12 and 24 who seek brands representing a lifestyle centered on activities that include skateboarding, surfing, snowboarding, bicycle motocross and motocross. It supports the action sports lifestyle and promotes its brand through a multi-faceted marketing approach that is designed to integrate its brand image with its customers’ activities and interests. In addition, Zumiez operates a Website, which sells merchandize online and provides content and a community for its target customers.
FUNDAMENTALS: Zumiez is a company that for years remained stagnant, but now is the fastest growing teen retailer around. Capitalizing on snowboard and skateboard apparel, it really began to ramp up growth in the middle of 2005 and hasn’t looked back. Year over year earnings have increased about 55% over the past couple years and while expected to slow a bit, earnings are expected (according to analysts) to remain strong at around 30 – 35% over the next couple years. Its profit margins are just average for its industry, but ROE is outstanding (23%) and continues to rise indicating strong management.
TECHNICAL: Technically, the stock recently cleared a new all time high after gapping up out of a long base. It doesn’t get any more bullish than that! Volume levels over the past few months indicate tremendous demand for the stock. With no overhead resistance in sight, the sky is the limit for Zumiez. If there is one negative in the chart, it’s the magnitude of the decline in the base, dropping from a high of 38.85 to a low of 20 (nearly a 50% drop). Typically, you don’t want the base to be deeper than about a 35% correction. What this probably means is that the stock will need to spend some time going sideways from here. It’s a bit extended now, but may offer a great opportunity on a retest of the 50 day moving average.
SELFINVESTORS RATING: With a total score of 52/60 (27/30 for fundamentals, 25/30 for technical), ZUMZ is a high quality break out 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 Zumiez (ZUMZ)