It was a great day for bulls on the surface with a better than expected retail number (although in part fueled by rising gas prices) and not as bad as expected results from Applied Materials (AMAT). Near the bottom, the market looks for excuses to rally and I think there was certainly some of that today but I don’t think we’re out of the woods from testing the lows of this correction.
There continues to be no leadership. When I’m running through my watch lists on a day the market rises nearly 200 points and have a hell of a time finding good buy candidates, I know it’s still not a healthy market. That’s exactly what I’ve been seeing over the past few weeks. Sure there are pockets of strength in some of the metals, railroads, coal, etc but most of the stocks moving are those that have been beaten down the most.
The brightest red flag of the day was in the volume levels. Institutions just aren’t putting big money to work as buy volume continues to trickle in at below average levels. You want to see some gusto on a day like today, but it just wasn’t there. There is a good chance of pushing a bit higher, but combine the lack of leadership with the lack of volume and the long side remains a dangerous place to play.
The Nasdaq cleared that first steep downward trend today with light volume. Considering the Nasdaq reversed off its highs yesterday with increasing volume I was a bit surprised at today’s move and in hindsight regret closing my QLD positions This move sets up a move to the next resistance area at the Jan highs around 2425, but given the lack of buy volume recently, we may need to pull back first and test that developing short term upward trend line (in green). Keep an eye on the green line. If we take that out, I think there is a very good chance of testing the lows of the correction or worse.
The S&P has yet to clear that first downward trend resistance and may have a tough time doing so given the lack of buy volume. If it does clear, look for a retest of the next resistance level around 1400. Also, keep an eye on the short term upward trend developing off the bottom – again, if we take that out there is a decent chance of testing the lows of the correction.
The Dow is a near replica of the S&P in terms of support and resistance. Notice the downward slope of buy volume.. not what you want to see in a strong market.
(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day February 13th 2008
Nasdaq: UP 2.32% today with volume 7% BELOW average
Nasdaq ETF (QQQQ) 2.19%, volume 14% BELOW average
Dow: UP 1.45%, with volume 8% BELOW the average
Dow ETF (DIA): UP 1.2%, with volume 25% BELOW the average
S&P ETF (SPY): UP 1.02%, with volume 21% BELOW the average
Russell Small Cap ETF (IWM): UP 2.05%, with volume 12% 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 performed about in line with the Nasdaq and Russell today and also saw little conviction on the buy side
* Advancers led Decliners 197 to 34
* Advancers were up an average of 3.03% today, with volume 10% BELOW average
* Decliners were down an average of 1.37% with volume 31% above the average
* The total SI Leading Stocks Index was UP 2.38% today with volume 4% BELOW average
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):
Agriculture, Commodities, US Oil, Materials, Gold
* Current Lagging Sectors/Industries (over last 30 trading days):
Broadband, Health Care Providers, Aerospace/Defense, Utilities
* Today’s Market Moving Industries/Sectors (UP):
Clean Energy, Oil Services, Dynamic Oil & Gas, Broadband, Semis, Internet Infrastructure
Bonds, Health Care Providers
::: 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. It’s been quite some time (last featured Parexel (PRXL) since I featured a Stock of the Day here as the market just hasn’t yielded many quality candidates, but as the market pushes higher off a bottom, a few more leading stocks are beginning to move up with significant volume (although leadership is non existent at this point and caution is urged). I try and highlight stocks in this section that most people aren’t talking about but "could" be talking about (hopefully after you’ve already pocketed big gains). Today’s stock certainly fits the bill – Balchem Corp (BCPC), a diversified specialty chemical company.
Balchem Corporation (Balchem) is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical sterilization industries. The Company has three segments: specialty products, encapsulated/nutritional products and the unencapsulated feed supplements segment (BCP Ingredients). The Company operates four subsidiaries, all of which are wholly owned: BCP Ingredients, Inc. (BCP), Balchem Minerals Corporation (BMC), BCP St. Gabriel, Inc. (BCP St. Gabriel) and Chelated Minerals Corporation (CMC). In August 2006, Balchem acquired from BioAdditives, LLC, CMB Additives, LLC and CMB Realty of Louisiana, an animal feed-grade aqueous choline chloride manufacturing facility and related assets located in St. Gabriel, Louisiana. In May 2007, the Company completed acquisition of the European-based choline chloride and methylamines businesses of Akzo Nobel Chemicals S.p.A. in Marano Ticino.
Balchem (BCPC) is a diamond in the rough with the combination a history of strong earnings growth but virtually no
Wall St. coverage. That’s a good thing for self investors like you and I because once Wall St starts covering it with more analysts, the stock will continue to rise in my opinion. Over nearly the last decade, this is a company that has posted year over year revenue growth in each and every year. With the exception of 2003, it has done the same with EPS growth with an average in the 20 – 25% range. That’s expected to continue in 08 with estimates calling for growth of 23%. Margins have been quite good throughout it’s history, fluctuating between 10 – 13% and well above the industry average. Return on Equity is more impressive at 19% indicating a strong management team. All in all, this company isn’t an exceptional grower but one with exceptional consistency for such a small company.
BPCP is a thin stock, trading just 70K shares a day so it will be prone to higher volatility on a day to day basis. Over the long term though, this is a stock that has been in a steady uptrend for several years now, dating back to early 1999. In that time, the stock has soared from just 1.50 a share to its current levels above 20. Wow! Taking a look at the daily chart below, you see that the stock broke out to a new all time high in December.. .then the market sell of hit and BCPC was far from immune. It brought the stock back all the way to its long term upward trend line where once again (as it has for the past 9 years) found support and is again chugging right along. Today, it surged again off that 200 day moving average with very heavy volume. It probably goes on to form a new base from this point point forward but I’d be looking to add shares on any pull back from here as close to support levels as possible. This is the kind of stock that is good for scaling into. Adding small positions on pull backs. Then, should the market get going again and the stock breaks out from a new base, you can add shares their as well with a nice profit cushion in the bag.
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 Balchem (BCPC).