::: Today’s Market Action :::
I mentioned in the weekend report that I would get increasingly bullish if the Nasdaq broke out of that consolidation with volume. It did that today. As a result, I got a bit more bullish and added two more small Quick Strike Profit trades to the Model Portfolio, but the divergence of volume in the S&P and Dow was a concern. In fact, volume continues to wane as these indices move higher. Until, we get a big, convincing move up in those indices I’m not jumping in on the long side with both feet. Tomorrow is a very important day with CPI data before the market opens and the FOMC minutes late morning. Let’s see if the Nasdaq break can hold.
::: 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 Feb 20th 2007
Accumulation only in the Nasdaq today.
Nasdaq: UP .67% today with volume 7% ABOVE average
Nasdaq ETF (QQQQ) UP .76%, volume 18% BELOW average
Dow: UP .15%, volume 6% BELOW the average
Dow ETF (DIA): UP .07%, volume 26% BELOW the average
S&P ETF (SPY): UP .21%, volume 9% BELOW the average
Russell Small Cap ETF (IWM): UP .9%, volume 67% 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 did very well today, outperforming all the major indices. In general, small to mid caps led the way up today which was also reflected in the performance of the Russell 2000.
Summary:
* Advancers led Decliners 301 to 136
* Advancers were up an average of 1.73% today, with volume 4% ABOVE average
* Decliners were down an average of 1.09% with volume 3% ABOVE average
* The total SI Leading Stocks Index was UP .85% 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 guaging 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://investing.typepad.com/tradingstocks/2006/09/wheres_the_big_.html
* Current Leading Sectors/Industries (over last 30 trading days):
Materials, Aerospace/Defense, Water, Transports, Realty
* Current Lagging Sectors/Industries (over last 30 trading days):
Oil & Oil Services
* Today’s Market Moving Industries/Sectors (UP):
Clean Energy, Retail, Consumer Services, Aerospace/Defense
* Today’s Market Moving Industries/Sectors (DOWN):
Gold & Gold Miners
::: 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 Morningstar (MORN), which broke out today to a new all time high.
ABOUT: Morningstar, Inc. is a provider of independent investment research to investors worldwide. The Company divides its business operations into three segments: Individual, which focuses on products and services for individual investors; Advisor, which focuses on products and services for financial advisors; and Institutional, which focuses on products and services for institutional clients, including banks, brokerage firms, insurance companies, mutual fund companies, media outlets, and retirement plan providers and sponsors. Morningstar maintains a series of databases on eight types of investments used by investors. As of December 31, 2005, the Company provided data on more than 17,800 mutual fund share classes in the United States; 43,000 mutual funds and similar vehicles in international markets; 7,100 stocks; 2,600 hedge funds; 4,800 separate accounts; 50,200 variable annuity/life subaccounts; 200 exchange-traded funds; 600 closed-end funds, and 80 college savings plans.
FUNDAMENTALS: Morningstar is a company that bled money for several years before finally becoming profitable in 2004. Since that time, the company hasn’t looked back. Earnings more than tripled in ’05 and will end up with another surge of 60 – 70% in 2006 once the company reports 4th quarter ’06 results on Thursday. 2007 earnings estimates call for an increase in the neighborhood of 35%. One key characteristic that I look for in companies that could become the next home run are rising margins and ROE. This is the case for Morningstar. In addition, management must believe in the company because it has money on the line with 80% ownership. All the fundamental characteristics are there for Morningstar to be big winner.
TECHNICAL: The stock broke out from a base today to a new all time high today. Although relative strength lags a bit with a score of 62/100, a high volume move into record territory is extremely bullish. Perhaps this move before earnings is forecasting a trouncing of estimates on Thursday morning. We shall see.
SELFINVESTORS RATING: With a total score of 52/60 (28/30 for fundamentals, 24/30 for technical), Morningstar (MORN) is currently a top 5 SelfInvestors.com break out stock.
A view of the weekly chart of Morningstar shows a break to new all time high.
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 Morningstar (MORN).