Good party today. It all started out with a very strong GDP number (wonder how much that will get revised downward?) which keeps recession worries off the table for now, tame inflation once again (huh?) and the Fed kicked it up a notch by spiking the punch. There’s no denying it was a strong day with all major indices rising with good volume but when you consider the perfect storm of good news across the board, I’m a bit surprised we didn’t close stronger on much higher volume. Let’s see what tomorrow brings. Remember that trading on the day of the Fed announcement can be a knee jerk move and isn’t a good indicator of what tomorrow will bring. A strong day tomorrow might push me into another long trade but I’m still reluctant to get aggressively long with major resistance in both the Dow and S&P500 still looming. Sure the Nasdaq is in another world and technically much stronger, but we have to wonder what will be the catalyst following this Fed induced rally particularly with the bulk of earnings behind us and the Fed indicating that they’re done for awhile? I’m maintaining neutrality here.
::: 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 October 31st 2007
Nasdaq: UP 1.51% today with volume 19% ABOVE average
Nasdaq ETF (QQQQ) 1.42%, volume 20% ABOVE average
Dow: UP 1.00%, with volume 23% ABOVE the average
Dow ETF (DIA): UP .82%, volume 58% ABOVE the average
S&P ETF (SPY): UP 1.04%, volume 35% ABOVE the average
Russell Small Cap ETF (IWM): UP 1.29%, volume 37% 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. A very good today for leading stocks which bodes well for this market. The Self Investors Leading Stocks Index outperformed all major indices with good volume behind it.
Summary:
* Advancers led Decliners 294 to 79
* Advancers were up an average of 2.75% today, with volume 40% ABOVE average
* Decliners were down an average of 2.39% with volume 128% ABOVE average
* The total SI Leading Stocks Index was UP 1.66% today with volume 59% 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):
Gold, Broker/Dealers, Internet Infrastructure, Gold Miners, Software, Agriculture
* Current Lagging Sectors/Industries (over last 30 trading days):
Retail, Consumer Discretionary, Homebuilders, Semis
* Today’s Market Moving Industries/Sectors (UP):
US Oil, Gold Miners, Commodities, Energy, Materials, Natural Resources
(as dollar continues to plunge commodities continue to skyrocket! – interesting that only commodities made it to leaderboard today)
* Today’s Market Moving Industries/Sectors (DOWN):
Home Construction (suppose traders were pricing in a 50 point cut just a bit)
::: 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 Mastercard (MA), currently the best way to play this increasingly cashless world.
ABOUT:
MasterCard Incorporated (MasterCard) is a global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of nearly 25,000 financial institutions. Through the Company’s three-tiered business model as franchisor, processor and advisor, it develops and markets payment solutions, process payment transactions, and provide consulting services to its customers and merchants. The Company manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro and Cirrus, which it licenses to its customers. MasterCard’s general purpose card brands include MasterCard, Visa, American Express, JCB, Diners Club and Discover. MasterCard generate revenues from the fees that it charges its customers for providing transaction processing and other payment-related services (operations fees), and by assessing its customers based on the dollar volume of activity on the cards that carry its brands (assessments).
FUNDAMENTALS:
Plastic payment providers such as Mastercard (MA) are a virtual money tree in that they make money on every transaction out there with very little change in the margins. It’s not a perfect world though. Lawsuits from large merchants are a constant threat to the profit machine as Mastercard (MA) saw in 2003 when it lost 2.90/share after large settlement costs. However, since then the company has been able to avoid large legal costs and returned to profitability in 2004 with earnings of 1.76 share which rose 34% in ’05 to 2.35/share, 45% in ’06 to 3.41 and is expected to rise another 46% here in ’07 (but those estimates need to be revised – looks like earnings will end up being closer to 55 – 60% higher over ’06 when it’s all said and done). So there you have it. Three years in a row of accelerating earnings growth and over the past year revenue growth has been picking up. With net margins (19%)and ROE (28%) spiking over the past year this is clearly a company hitting on all cylinders.
TECHNICAL:
Mastercard (MA) was certainly the headliner today with a 20% surge out of a cup with handle base to new all time highs. It’s too bad it couldn’t breakout like this AFTER the Fed announcement today because I decided not to initiate any new entries today so may have missed out on a good entry point in what will be a great core holding in any portfolio. That’s OK.. nothing wrong with staying disciplined. If you didn’t catch this one at the open and are waiting for an entry like I am I’d look to start nibbling at 185 or lower with a small position and then add to a long term position along the way.
SELFINVESTORS RATING: With a total score of 52/60 (27/30 for fundamentals, 25/30 for technical), Mastercard (MA) is a top SelfInvestors breakout 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 Mastercard (MA)