Wednesday, March 05, 2014

Leading Growth Stocks Cracking While Indices Flat Line on Lower Volume

Indices opened and closed at basically unchanged. They spent the entire day in a tight range threatening to breakout into either direction but to no avail. Volume was lower and quiet.

The bulls couldn't have asked for a better day after a thrust to new highs Tuesday on significantly higher volume. The market is closing in on resistance at a solid upper trend line and over extended levels that have acted as short term tops over the last ten months.






Leading growth stocks are becoming mixed by the day. From the opening to the closing bell they lagged significantly, even during rally attempts. A few still managed to breakout or follow through to new highs, but many others appear exhausted and starting to move higher on lower volume, getting extended over their moving averages and trend lines, and for every new setup that works, at least two to three fail. Not the type of action that supports much more upside.

Solar stocks, SolarCity (SCTY) and Canadian Solar (CSIQ), both recent breakouts, sold off significantly on heavy, above average volume, and have or on the verge of failing. YY (YY) after being up over 10% in after hours trading, reversed and closed lower on the heaviest daily volume in its history. NPS Pharmaceuticals (NPSP), a recent cup and handle breakout, failed, slicing through its 50 day moving average on higher, above average volume. Hovnanian (HOV) was working up the right side of its base, but gapped down and sold off over 10% to close below its 200 day moving average, in the heaviest volume in the last year, on a weak earning's report. This is the first time since the market bottomed on February 5th, that so many leading growth stocks are starting to send major sell signals, especially in one day.

On the bright side, Pheonix New Media (FENG) broke out of cup and handle, SolarFun (SFUN) was breaking out from pullback to the fifty day moving average, DryShips (DRYS), US Silca Holdings (SLCA), and E-HOUSE (CHINA) (EJ) are strongly moving up the right side of their bases in higher volume.

The market is sending enough warning signals to be cautious, but not enough to be completely in cash. There is good chance the rally could last into the FED decision on March 19th, at 2 PM, even if the reaction to tomorrow's Monthly Job's Report is poor. Barring some unforeseen news event, and there is a high likelihood the event will be unforeseen, the market is hoping for a slow down in tapering at the next meeting and a continuing deescalation of the Russian Ukrainian crisis. Anything short could be negative on the market, especially if leading growth stocks aren't tight and setup, which they are not, right now.

LEADING GROWTH STOCKS ANALYSIS - THE SETUP

Lannett Co (LCI) has run up over 800% in the last year. The recent gap up on a strong earning's report provided a great entry point for a 20 - 25% gain. Currently, the stock is in a much shorter consolidation off the ten day moving average and could appreciate another 10 - 15% if the market cooperates a little longer.




SHORT IDEAS - THE SETUP

Cirrus Logic (CRUS) has trended lower since the current major leg of the bull market started at the end of 2012. The stock has formed a head and shoulder pattern and is currently testing the neckline, on low volume, that it broke down thru by gapping down on significantly higher volume after Apple's (AAPL) and its own earning's reports. A break below the 50 day moving average could resume the stock's down trend to under $16.



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