Today was a microcosm of what what we’ve been seeing the past few weeks, which has been ruled by sharp swings in both directions intraday. CSCO got things started off in the green with positive results and comments from CEO John Chambers saying that global business is the strongest he’s seen in his career. However, rumors that Goldman Sachs would make some negative comments after the bell erased large gains in a matter of minutes. It wouldn’t be a typical day of trading without a complete reversal back in the opposite direction after GS denied the rumor now would it? The bottom line is that this is a schizo market with itchy trigger fingers on the part of both buyers and sellers. The volatility can create fantastic swing and day trade opportunities, but as I’ve said before this market is best left alone for most investors right now. We were certainly oversold and due for a bounce, but the biggest 3 day surge in a few years? It really is mind boggling and difficult to make any sense of.
From a technical perspective, there are a few things at work. Technically, we are now in a confirmed rally but I just can’t trust it with the way this market reacts to any kind of comment or rumor. If we can retrace at least half of this move with light selling volume, I’d be willing to get more aggressive on the long side, but we can’t ignore the fact the Dow is carving out a picture perfect head and shoulders top and that both the Dow, Nasdaq and Russell are fast approaching key resistance levels. Will the market ignore the technical damage and march to new highs like it did in April? I certainly wouldn’t be making large bets that the market will make a habit of this. Right now what we have is a case of contradictions not only from a technical standpoint but from comments about what is going on in the credit market and unfortunately it’s probably not going to go away anytime soon. Only time will tell.
::: 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 August 8th 2007
Accumuluation across all indices
Nasdaq: UP 2.01% today with volume 57% ABOVE average
Nasdaq ETF (QQQQ) UP 1.1%, volume 18% ABOVE average
Dow: UP 1.14%, with volume 15% ABOVE the average
Dow ETF (DIA): UP 1.11%, volume 54% ABOVE the average
S&P ETF (SPY): UP 1.39%, volume 42% ABOVE the average
Russell Small Cap ETF (IWM): UP 3.04%, volume 74% 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 fared much better today than they did on Monday, outperforming the major indices.
Summary:
* Advancers led Decliners 258 to 66
* Advancers were up an average of 3.59% today, with volume 88% ABOVE average
* Decliners were down an average of 2.22% with volume 83% ABOVE average
* The total SI Leading Stocks Index was UP 2.14% today with volume 87% 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):
Nanotech, Clean Energy, Technology, Consumer Staples
* Current Lagging Sectors/Industries (over last 30 trading days):
Broker/Dealers, Financial, Gold, Home Construction
* Today’s Market Moving Industries/Sectors (UP):
Home Construction, Clean Energy, Realty, Gold Miners, Water Resources
* Today’s Market Moving Industries/Sectors (DOWN):
Bonds, Telecom
::: 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 Kenexa Corp (KNXA), which broke out of a long one year base ahead of its earnings report after the bell today (it’s down nearly 5% after hours which may offer a better entry point).
ABOUT: Kenexa Corporation provides software, services and content that enable organizations to recruit and retain employees. The Company’s solutions are built around a suite of configurable software applications that automate talent acquisition and employee performance management best practices. It offers the software applications that form the core of its solutions on an on-demand basis. The Company complements its software applications with tailored combinations of outsourcing services, consulting services and content. Kenexa sells its solutions to large and medium-sized organizations through its direct sales force.
FUNDAMENTALS: KNXA is a very small company (just over 100 million in sales last year) but one that is experiencing a big growth spurt since first becoming profitable in 2005 when the company posted earnings of .40/share (compared to a loss of .22/share a year earlier). The company continued the earnings momentum last year by posting earning growth of 140%. This kind of growth isn’t expected to continue but estimates do call for growth of around 30% over the next couple years. Net margins are solid at around 13%, but ROE isn’t impressive at 8% and has been declining in the past couple years. All in all, this is a very good company but not what I would consider elite.
TECHNICAL: Today, the stock broke out from a long one year base with big volume to new all time highs, BUT the company did report after the bell and guided next quarter in line to lower which took the stock down nearly 5% in after hours. This may present a better entry or could derail the stock entirely. If the stock can find support at the point of breakout around 39 I’d be willing to initiate a small position. While the base is a bit on the sloppy side, you can’t argue with the bullishness of a stock breaking out of a long base to new all time highs.
SELFINVESTORS RATING: With a total score of 49/60 (24/30 for fundamentals, 25/30 for technical), Kenexa Corp (KNXA) is a solid breakout play.
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 KNXA.