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Members of The PPT and 12631 can click here for the consumer credit industry screen, ranked by PPT Technical score. In sum, many are impressively set up. They showed relative strength to the market throughout the summer. The big ones are obviously MA and V, which look excellent here too.
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I do not like complaining about the market, because it can adversely affect the way I view the action. The assorted gaps and swings in either direction that we have been experiencing are more volatile and commonplace than usual, but I can only assess the actual market in front of me, rather than the one I want to see. It is almost always best to work through these types of markets, putting in extra time to refine your craft even if you are not actively trading, as opposed to walking away indefinitely. Accordingly, I am going to focus on a positive and promising area of the market–The internet security space. Intuitively, it seems like an obvious secular growth market.
My two best ideas in that industry are FIRE and FTNT. Looking at the weekly chart of FIRE below, you can see the price action is tightening up as it works through a massive ascending triangle. Above $31.50, this heavily-shorted low-floater can work much, much higher. Earnings are out of the way and they were favorable to boot. Fortinet is in pure gap-fill mode at this point after a multi-month correction, and its multi-year bull run looks to be continuing. Also keep an eye on BCSI and CHKP.
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Despite the herky-jerky price swings overnight and this morning, the market did in fact fill the gap up to the opening sell-off on Halloween Monday. The nature of the increasingly random price action is what is most concerning, but somehow it keeps shrugging off the idea of a major leg down. It is often said that a bull run climbs a wall of worry, so perhaps that is what we are seeing right now.
I am doing my best to stay nimble and keep an open mind about where the market goes from here. From a big picture perspective all that has happened since the multi-week rally in October is a backtest to prior resistance, which ordinarily should become newfound support. Unfortunately, the price action in 2011 has been out of the ordinary in many respects, borrowing characteristics from both bull and bear markets at various times, with a higher degree of sensitivity to headlines.
As far as individual plays are concerned, the underlying energy to these moves is still a bit problematic for me. Nonetheless, I am not interested in the fighting the market if it wants to go higher here. In particular, the cloud-computing plays such as CTXS and RAX look playable.
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After the 2000-2002 bear market, common sense dictated that some of the larger tech firms would all be fine once the dust settled with the many weak/phony dot-com firms rendered bankrupt, but we know from Intel’s multi-year chart that was not necessarily the case. Along with the dead money action in Microsoft and Cisco, it has become easy to dismiss the “old tech” firms as being washed up like Roy Hobbs was by the Quaker Oats guy in The Natural.
Being at the epicenter of the dot-com bubble at the turn of the century, Qualcomm also saw the parabolic run up and subsequent crash like most issues in the Nasdaq focused on technology. Unlike the aforementioned old-tech-dead-money firms, though, the stock has handled itself admirably over the past decade. As you can see on the monthly chart below, Qualcomm has been working through a steady, rising channel making major higher highs and higher lows along the way.
After the bell on Wednesday, Qualcomm saw a highly favorable reaction to earnings, up nearly 10%. I am watching the $60 level closely for a decade-long breakout, and I suspect there is much room above to run. Much of that is predicated on the health of the broad market, but make no mistake that I expect Qualcomm to be one of the old-school generals should the bulls march higher.
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I am still long SLV and have been for about a week. I am impressed with its outperformance of gold and an opting to stick with it here. In particular, I believe there is still an excellent chance for a major gap fill up to late-September levels of $36/$37. Beyond the precious metals, the energy stocks are most impressive to me this afternoon, namely CPE KOG and XEC. The retail sector that I profiled last night is starting to gain steam too.
In sum, if we see the whippiness of the market abate, I am going to focus on the aforementioned sectors.
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