::: Today’s Market Action :::
With traders growing concerned about the strength of the economy and declining earnings, positive news to the contrary (along with some M&A activity) sent markets surging higher today. The S&P500 busted through resistance to a new multi year high with the last line of resistance at all time highs. Both the Dow and the Nasdaq are nearing resistance of their February highs.
On the surface it looked a huge day for the bulls, but volume levels revealed a different story – skepticism and hesitation on the part of institutions. While volume edged up slightly from Friday in both the S&P and Dow, it was still below average. I mentioned in the weekend report that the more this market moved up (particularly with below average volume), the greater the risk on the long side. Considering today’s divergence of price and volume, I still feel that way despite the break out in the S&P. It’s OK to continue dabbling on the long side, but to get aggressive is a mistake in my opinion. With key economic reports tomorrow and some big name earnings after the bell, we’re approaching a critical area. Consider locking in some profits where you have them.
Note: The stockcharts.com server is still down, so no annotated charts again this evening. I’ll try and post them tomorrow.
::: 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 April 16th 2007
Accumulation in the Dow and S&P.. just barely.
Nasdaq: UP 1.06% today with volume 18% BELOW average
Nasdaq ETF (QQQQ) UP .92%, volume 42% BELOW average
Dow: UP .86%, volume 8% BELOW the average
Dow ETF (DIA): UP .71%, volume 12% BELOW the average
S&P ETF (SPY): UP .95%, volume 20% BELOW the average
Russell Small Cap ETF (IWM): UP 1.29%, volume 27% 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 well today in terms of price performance, but volume levels indicate that institutions were not pouring money in. This confirms the lack of conviction in today’s move in the market.
Summary:
* Advancers led Decliners 357 to 67
* Advancers were up an average of 1.93% today, with volume 8% BELOW average
* Decliners were down an average of 1.39% with volume 17% ABOVE average
* The total SI Leading Stocks Index was UP 1.41% today with volume 4% BELOW 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://selfinvestors.com/industry_tracking/
* Current Leading Sectors/Industries (over last 30 trading days):
Utilities, Consumer Goods, Networking, Internet, Broker/Dealers, Pharma
* Current Lagging Sectors/Industries (over last 30 trading days):
Agriculture, Home Builders
* Today’s Market Moving Industries/Sectors (UP):
Financials, Broker/Dealers, Nanotech, Home Construction, Gold
* 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. There weren’t too many top rated stocks breaking out of bases today, so I chose one of the top IPO’s of last year that appears to be on the verge of breaking out – Divx Inc. (DIVX).
ABOUT: DivX Inc. (DivX) creates products and services designed to improve the experience of media. The Company’s product offerings include a video compression-decompression software library (codec) and other consumer software, including the DivX Player application. It also licenses its technologies to consumer hardware device manufacturers and certifies their products to ensure the interoperable support of DivX-encoded content. DivX’s customers include major consumer video hardware original equipment manufacturers (OEMs), including Koninklijke Philips Electronics (Philips) and Samsung Electronics. In addition to technology licensing to consumer hardware device manufacturers, the Company generates revenue from software licensing, advertising and content distribution. In March 2006, DivX acquired all of the assets of Corporate Green, a general partnership that developed an online community platform.
FUNDAMENTALS: Aided by the booming popularity of online video, DIVX had a break out year in 2005 which saw the company swing to its first full year profit in company history. 2006 was even better, with earnings increasing 600% over ’05. One key characteristic that I look for in top stocks is rising margins and return on equity. Net margins (at 28%) are outstanding and rising quickly. Return on equity isn’t exceptional, but very good at around 14%.
TECHNICAL: This is a stock that still needs to prove itself to a certain degree. It’s just now making a move up in the right side of its first base since going public in September of last year. With sell volume drying up at the bottom and a big gap up above resistance of the 50 day moving average following preliminary earnings guidance above previous estimates, I believe the stock won’t have any trouble breaking out and testing its all time high around 32 over the next few months. A strong break out above the peak of a double bottom base at 24.21 and I will consider a position.
SELFINVESTORS RATING: With a total score of 51/60 (27/30 for fundamentals, 24/30 for technical), DIVX is a top break out candidate.
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 Divx Inc (DIVX).