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  • Market Commentary 0 comments
    Aug 28, 2009 4:36 AM | about stocks: RAX, CTCT, DGWIY, SWI, BIDU

    We continue to sing a familiar tune here at Monster Stock Trader: “Keep It Simple.”  Ignore both the bears and the bulls, ignore all the bad news, all the well-crafted diatribes against this rally by those well polished though less than reliable commentators who should know better; ignore the cheerleaders and the “prophets of profit” too.  Price and volume.  The end all be all of this market, folks, is its price/volume action.  Period.  Be it the price/volume action of your stock or the price/volume action of a particular index, that’s where you’ll find the truth.  Everything else is merely a distraction.  And not a pleasant distraction, either, but one that will only serve to confuse and frustrate your trading.  How many people do you know have made a killing this rally?  Exactly.

    Let’s see how the Nasdaq is looking:

    Rackspace (NYSE:RAX): Volume came into the stock today as it traded around its 50 day moving average and, seeing that it closed in the upper half of the day’s range, one may reasonably conclude that it was supportive action.  There appears to be demand for the stock at this level.  We’ll want to see RAX begin to exhibit some significant strength soon, though, as it’s been bouncing along this moving average long enough, in our opinion.  Time to put up or shut up.  A possible scenario is that RAX forms an ascending base; however, for this to evolve the stock would need to both rally (higher high) then pullback (higher lower) one more time before finally breaking above the previous high on powerful volume to complete the pattern.  This remains to be seen and is simply something to keep in the back of you mind if, for example, RAX rallies 20-30% or so from here only to stall on you.  You may want to take some profits at that point and reassess the situation.

    It’s also a weaker candidate for a couple of other reasons.  One is that for five straight quarters sales have decelerated, from 59% to 16%.  Not exactly what we like to see.  Earnings, however, are set to ramp up and, in fact, the consensus estimates keep getting raised.  As of five months ago analysts expected RAX’s profit to rise 16% in 2009 and 45% in 2010; well, as of today profit is now expected to increase 33% this year and 58% next.  Still, another red flag for RAX is its rather loose trading.  For a stock that trades nearly a million shares a day you’d expect it to behave a little better.   Having said that, mutual funds keep gobbling up shares quarter after quarter.  There were only 9 funds in the stock last September and, as of June of this year, there were 41.  I expect this number to keep rising as the chart tells me that this is an equity funds are still accumulating.

    A breakout above $15 looks buyable to us.  Cut loss is today’s low/lower trend line (around $13.50).



    Constant Contact (NASDAQ:CTCT) is one of those stocks to “keep your eye on.”  You hate your junk mail, don’t you?  Of course you do.  All it does is clutter up your mailbox.  Yet what do you do just before you toss it?  If you’re like us you flip through this trash to see what might actually be of some use.  Well, think of it this way: CTCT is a leader in junk e-mail.  If you’re sick of companies “wasting paper,” then CTCT is the solution you’ve been waiting for.  They are far more than this, of course, but you get the idea.  In essence, they handle e-mail marketing.  Before you dismiss the idea out of hand, bear in mind that analysts’ estimates call for 200% growth this year and 211% growth in 2010.  Make no mistake about it: this is a cutting-edge company.  While mutual fund ownership continues to grow, it’s by no means “institutional quality” as yet.  It’s a thin stock, too, so buyers beware.


    Since this seems to be a “stock to keep your eye on” kind of night, another stock for your consideration is Duoyuan Global Water (DGW).  If you believe that clean water is important to China, then you may very well want to follow DGW.  This is a company that grew 69% in 2007, 78% in 2008 and, believe it or not, is expected to grow 242% this year.  Again, this stock is traded thinner than what we prefer so we wouldn’t bet the farm on it just yet.  If it is going to be a Monster, we’ll have plenty of time to get involved as liquidity improves.  We merely point it out tonight as the base is so far pretty constructive and it’s got that “certain something,” as they say.

    Let the market be your master and you’ll be fine.  We see bases forming that are anything but discouraging.  Look here and see a three weeks tight: SolarWinds (NYSE:SWI); look there and see a flat base: Baidu (NASDAQ:BIDU).  Can it all fall apart tomorrow?  Of course.  We could get three distribution days in a row and that’s that.  But that’s yet to happen.  We don’t do that here, we don’t anticipate.  We look at the evidence and formulate a plan, regardless of what market commentators, gurus or “experts” might have to say.

    As of tonight, the market is, if not perfect, more resilient than most realize.

     

     

    Themes: NASDAQ Stocks: RAX, CTCT, DGWIY, SWI, BIDU
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