Sunday, March 23, 2014

Following the Leaders Paints an Unclear Picture

The month of March has brought sideways action and a fairly tight range for all major indexes (Nasdaq closed at 4277 on 3/3 and closed Friday at 4276).  Considering the positive move all indexes had during the month of February, consolidation is expected and probably a good thing.  The action of leading stocks, however, has painted a somewhat different picture and is worth watching here.

Below are what I would call the leading stocks of this market, or at least the stocks that I look to on a nightly basis to get an overall impression of how individual stocks are acting.  When you look at these, many have pulled back much more than the overall indexes have done.  I don't take this as bullish.   There are some that are hanging in nicely and consolidating gains much like the market has been doing (KORS and FB would be good examples), but there are a lot more names that have pulled back quite a bit further than the overall market, breaking below key support like the 20 day EMA and the longer-term 50 day moving average (FEYE, SCTY, YELP for example).  This divergence could likely go two ways. 

ARWR
FB
FEYE
HIMX
JAZZ
KORS
NFLX
SCTY
TSLA
 VIPS
 YELP
 YY
Charts from TC2000, Courtesy of Worden Brothers, Inc.

If we start to see these leading names act better and move up to regain their moving averages, I would feel much better about the chances of this market breaking out of its current trading range and into new highs soon.  I worry however that what we may be seeing is some names being sold out of before the market shows actual "ugliness" and if that's the case, things could get nasty in a hurry.

I've been in cash for about a week now but made one small purchase on Friday.  I had watchlists ready to go all week and then just didn't see any of the names on those lists act the way I wanted them.  I think caution is warranted here until either the market shows better action than it did last week (where Friday's action was particularly nasty) or the leaders above start moving higher.  One area I may look at this week is the fuel cell names as they perhaps put a little bottom in on Friday (see below) but most of my powder will remain dry until I see better action.   Good luck.

Charts from TC2000, Courtesy of Worden Brothers, Inc.

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