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Our research draws its market bias from a combo of Fundamental and Technical evidence. Economic and earning trends are matched against our analysis of price and volume charts, giving us an indication of how friendly or unfriendly the market is behaving. The goal is to identify top growth stocks... More
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  • Cautious Buyers 6 comments
    Jun 17, 2010 7:55 PM | about stocks: MELI, LULU, DECK, CMG, AKAM, ARUN

    We're going with a Buyer's Caution bias after Tuesday's Follow Through Day (FTD.)

    The FTD indication comes at least after four days after a potential market bottom, with one of the major indexes rallying at least 1.7% on volume greater than the day before.

    To some, this may seem like an insignificant event in the randomness of week-to-week market activity. But what it means is institutional-grade buyers have stepped up to endorse the long side of the market.

    The FTD has been most famously identified by William O'Neil of Investors Business Daily, whose research has connected the event to every major rally in stocks over the past century or so. But it should be noted that not every FTD leads to a market bottom.

    Think of the market as a plane and volume its thrust. Over the past several weeks the market's downfall has occurred on heavy, or institutional, sell-volume. To stay bullish, we want to see the volume bias shift to buyers, with up days occurring on volume greater than the day before for what are known as Accumulation Days.

    Thursday's Accumulation Day on the S&P 500 is a step in the right direction. As the major averages now test ground above their 200-day moving averages we also want to see the sell-volume drop off.

    We're also encouraged by a number of Growth Stocks breaking out and sticking:

    Mercadolibre (NASDAQ:MELI), a second tier Matrix stock of ours, has clocked new highs for the last two weeks when it broke out of its two-year long technical base.

    Lulumon Athletica (NASDAQ:LULU), a first tier Matrix selection, broke out of a two-and-a-half-year base.

    Akamai Technologies (NASDAQ:AKAM), has been on for new highs for three weeks since breaking lose from its year-and-a-half long base. The company doesn't have strong enough fundamentals to qualify for our Matrix, though has been listed in this report for weeks as an 'A' grade stock.

    Chipotle Mexican Grill (NYSE:CMG) also hit a new high this week. As an 'A' grade stock it's held a volatile, upward trend toward its recent all-time high.

    Deckers Outdoor (NASDAQ:DECK), another 'A' stock, has also hit a new all-time high since breaking out of its year-and-a-half long base two weeks ago.

    Aruba Networks (NASDAQ:ARUN) and Ulta Salon (NASDAQ:ULTA) also join the list after being listed here with the others last week.

    The success of the above stocks will be telling of other Growth Stocks poised for breakouts. Subscribe to The Growth Stock Report for individual selections.


    Disclosure: Long: MELI Short: TEX OVTI

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Comments (6)
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  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Just as a matter of curosity, what past metrics, fundamentals, or even technicals have any meaning whatsoever ... when 70-80% of the daily trading volume is made by prop trading desks, HFT'ers, algo traders, and a handful of large hedge funds. Collectively this group of crooks comprises far less than 1% of all market participants.


    Today's market is in no way comparable to past markets. That is why retail investors and even institutional investors are leaving the markets in droves. Corporate insiders continue to sell, sell, sell at every opportunity. Equity mutual funds continue to see ongoing outflows. Basically investors of every kind are starting to realize that they are playing a rigged game, run by the handful crooks that dominate the markets.


    As such it seems to us that attempting to us any "traditional measures" such as FTD or anything else is trying to use meaningless data that has no real correlation to what actually happens.
    17 Jun 2010, 10:32 PM Reply Like
  • GSRTrades
    , contributor
    Comments (10) | Send Message
    Author’s reply » HFT may dominate volume, but that's nothing radically new. A decade ago we were calling it program trading. What we're trying to measure best is mutual fund and pension fund volume. I don't believe their weight is meaningless against HFT. Should the counting of accumulation days and distribution days start to fail, we'll quit it. But I certainly have no reason to do so at this time.
    18 Jun 2010, 12:11 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Equity mutual funds are experiencing significant cash outflows and have been for many many months now. Pension funds are probably at their lowest level of US equity exposure in years. What you call accumulation and/or distribution is a bunch of trade bots trading back and forth between themselves to the tune of 70-80% of the market volume. When they pull the plug on the trade bots you will see flash crash x 3-5 times. Program trading was never even remotely in the same league as the current level of HFT, prop desk, algo trading.


    But hey if it works for you, and you can daytrade the market and make money against the bots .... more power to you. Just saying that this is not a rational market based on any reasonable fundamentals or past metrics and as such not sure technicals mean anything at all. For the real investor who is interested in LT returns and reasonable safety, this is not a good time to be buying most equities. There will be much better opportunities for that in the somewhat near future if fundamentals and past metrics have any meaning at all.
    18 Jun 2010, 09:50 PM Reply Like
  • GSRTrades
    , contributor
    Comments (10) | Send Message
    Author’s reply » Program trading was about 50% of volume about a decade ago. Yes, mutual funds have had major outflows last month, that's when we went bearish after noticing several distribution days pile up. It's certainly healthy to remain skeptical that it was just a coincidence. But we'll use the analysis until we can prove it's faulty.


    We're not daytraders, our style is more like the intermediate-term. Market has never been a rational place. We stay profitable by cutting our losses short and letting the winners run. We could be right only half the time and still make money with that discipline.
    18 Jun 2010, 10:36 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    OK, if it works for you that's great. But according to the quote below from one article in CNN Money, the statistics on US equity markets are pretty pathetic.


    "Investors have put only $1.8 billion into US stocks from January through March, according to the Investment Company Institute, while they added $24.1 billion to foreign stock funds and $100 billion to bond funds, continuing the flight from risk they pursued with a vengeance in 2009".


    Basically, that just confirms our view about "meaningless" price action, meaningless volume, meaningless comparisons with any past market metrics, and very likely meaningless technical indicators. It is pretty obvious that almost all of the market action is simply trading bots trading to other trading bots, and as such it really tells the investor nothing except that the trading bots will move the market wherever they choose to.


    If you can trade against the bots and virtually unlimited free money, then good luck to you. Our view is that the rational investor should step out of the way and let the tiny handful of prop trading desks, HFT'ers, and algo traders keep trading back and forth between themselves until "traditional metrics and valuations" show some return to the markets. If the quoted money flow statistics are accurate, then it appears that a hugh number of investors seem to agree with staying away from the US equity markets at this point in time.


    Our view is that the only relatively safe play in the markets these days is to sell well out of the money puts, collect the premiums, and only be "put" to buy at significantly lower prices. Works for us and still generates very decent returns with significantly less risk. At least that way we don't have to battle the bots day in and day out and really don't care if market goes up or down.
    19 Jun 2010, 02:39 AM Reply Like
  • GSRTrades
    , contributor
    Comments (10) | Send Message
    Author’s reply » Three months of light inflows into mutual funds doesn't tell me their overall trading volume is insignificant. The stocks these computers trade in tend to be largest of large-caps, not the smaller growth stocks we specialize in.


    Price action doesn't look a whole lot different now than it did over the past century. In a way, it would be good to see average investors shaken out of the market. We'll be shorting all the way if that happens. It wasn't until the 1980s that average people began to be investors. Until then it was only for the very wealthy, who to some, controlled and manipulated the market. Our analysis would have worked then. Like I say, we'll do this until we stop making money with it.
    19 Jun 2010, 11:03 AM Reply Like
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