At this point I think it’s safe to say that the market is looking for just about any glimmer of positive news in order to rally from very oversold conditions and will probably begin brushing aside some of the bad news that has become typical such as horrible existing home sales. News out of Citigroup that it’s getting a 7.5 billion cash infusion provided some early optimism but is this really a positive? To think a company like Citigroup would need to raise cash in a hurry from a foreign company at 11% is in my mind a harbinger of things to come. It’s going to get worse.
At any rate, the market pulled itself up by its boot straps from oversold conditions today and managed to stage a significant rally with enough volume to signal accumulation. Yes, there was good volume behind today’s rally, but this is not the kind of action that marks a bottom. Throughout the day, I was surprised at how few opportunities there were in breakouts of leading stocks. When the market turns, there will be a wave of high quality breakouts to choose from, but we need to see a big day of capitulation or some big time institutional buying before that can happen. Neither occurred today, so it pays to continue to tread lightly here. We’re close, but not quite there yet. There will be plenty of time to profit, so the important thing is to not jump in aggressively too early. The early bird may get the worm, but he also may find himself in the belly of a bear.
::: 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 27th 2007
Nasdaq: UP 1.57% today with volume 1% BELOW average
Nasdaq ETF (QQQQ) UP 2.00%, volume 29% ABOVE average
Dow: UP 1.69%, with volume 25% ABOVE the average
Dow ETF (DIA): UP 1.46%, with volume 55% ABOVE the average
S&P ETF (SPY): UP 1.15%, with volume 49% ABOVE the average
Russell Small Cap ETF (IWM): UP 1.27%, with volume 11% BELOW 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 were about in line with what the major indices did today, but notice the volume behind rising stocks versus declining stocks. Not exactly bullish action from the leaders today.
Summary:
* Advancers led Decliners 227 to 76
* Advancers were up an average of 2.17% today, with volume 4% BELOW average
* Decliners were down an average of 2.45% with volume 57% ABOVE average
* The total SI Leading Stocks Index was UP 1.01% today with volume 11% 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):
Bonds, Agriculture
* Current Lagging Sectors/Industries (over last 30 trading days):
Semis, Retail, Internet, Materials
* Today’s Market Moving Industries/Sectors (UP):
Internet, Real Estate, Biotech, Regional Banks, REIT
* Today’s Market Moving Industries/Sectors (DOWN):
Oil, Gold, Commodities, Oil Services, Natural Resources
::: 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 isn’t going to grab headlines and be bantered about in discussion boards. Danaher (DHR) is a blue collar, large cap conglomerate that straps the hard hat on every day and delivers consistent profits quarter after quarter, year after year.
ABOUT:
Danaher Corporation derives its sales from the design, manufacture and marketing of professional, medical, industrial and consumer products. It operates in four segments: Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools & Components. During the year ended December 31, 2006, it acquired Sybron Dental Specialties and Vision Systems Limited, in addition to other nine companies, which are manufacturers and assemblers of environmental instrumentation, medical equipment or industrial products, in the market segments of electronic test, critical-care diagnostics, water quality, product identification, and sensors and controls. In July 2007, the Company acquired ChemTreat, Inc. In July 2007, the Company completed the sale of its power quality business to Thomas & Betts Corporation. As of November 21, 2007, the Company, through its indirect wholly owned subsidiary, Raven Acquisition Corp., had acquired over 90% interest in Tektronix, Inc.
FUNDAMENTALS:
Danaher is far from the small cap high flyers I often highlight here, but in difficult markets it’s the big, lumbering, profit machines that will weather the storms the best and Danaher is certainly one of those. According to Morningstar, the company has posted EPS growth in 9 out of the past 10 years and isn’t yet showing any signs of slow down. EPS growth since 1997 has come in at 20.7%, 2.7%, 35.6%, 24.6%, (9.9%), 38.8%, 20.8%, 36.5%, 20% and 26.1% last year in 2006. Growth for 2007 is expected to remain in line with historical growth with about a 20% rise in EPS. Revenue growth has been equally as solid over the years but it should be noted that revenue growth has been decelerating a bit in recent quarters, dropping from 22%, to 18%, 19%, 14% and 13% in the latest quarter. Still excellent growth for a company of this size. Combined with a very good Return on Equity of 17%, Net Margins that continue to rise as they have over the past 5 years and strong management ownership of over 20%, Danaher is top Self Investors large cap stock.
TECHNICAL:
The chart of DHR over the past 2 years provides a great example of how you might play a leading breakout stock, adding shares on each subsequent breakout. The first entry point was provided on a break from a long one year base at the beginning of 2006. It provided a 2nd entry point on a break from a new base in early October 2007 and a 3rd entry on a breakout this summer to yet another all time high. Despite a correcting market, DHR continues its bullish ways and has come away relatively unscathed over the past month and is looking poised to breakout from a flat base it’s been working on since late September. The stock may provide a good entry on a breakout from this flat base above 86. Remember: the stocks that hold up the best during a correction will likely lead the market with big gains once the market gets going again.
SELFINVESTORS RATING: With a total score of 50/60 (26/30 for fundamentals, 24/30 for technical), Danaher (DHR) is a highly rated Self Investors leading 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 Danaher (DHR)