As major averages continue to move higher at a snail's pace,
the calls for a market pullback seem to have subsided a bit.
The bears' case isn't a bad one by any means, but sell signals
-- for now -- remain few and far between. Headed into Wednesday,
the S&P 500 showed just two higher-volume declines in recent
weeks -- nowhere near enough to cause problems for an uptrend.
Market-leading growth stocks are holding up just fine. Very few
are showing signs of institutional selling, threatening to break
below key support levels.
One other thing to look for near a market top is excessive
speculation in lower-quality names. The thinking here is that
once all the high-quality stocks have moved (and a lot of them
have moved already), the only thing left is the lower-quality
names. Once the lower-quality names have moved, there aren't any
more buyers left, raising the odds of a market pullback.
The restaurant group is a good example. While former leaders
like Panera Bread (Nasdaq:
) and Chipotle Mexican Grill (NYSE:
) continue to struggle, many speculative, sub-$1 billion market
capitalization names in the group have started to move.
On Tuesday, Red Robin Gourmet Burgers (Nasdaq:
) reported a blowout quarter and investors responded positively,
sending shares higher by 19%. After several quarters in a row of
single-digit sales growth, sales jumped 17% to $240.7 million.
Short interest was high in Red Robin ahead of earnings so a big
part of Tuesday's move was most likely short covering. It was an
outstanding report, but with a market capitalization of $617
million, Red Robin is one of the more speculative names in the
Other spec restaurant names on the move lately include Del
Frisco's Restaurant (Nasdaq:
), with a market capitalization of $417 million, Nathan's Famous
) with a market cap of $171 million and Ruth's Hospitality
) with a market cap of $325 million.
Meanwhile, the IPO market has gotten a little frothy as well.
), a provider of online and mobile money transfer services priced
at $16 on Feb. 15 and closed at $25.49, up 59%. And ExOne
), a provider of 3-D printing services, went public on February
17 at $18. It closed at $26.52, up 47%.
Keep in mind that excessive speculation in less liquid names
doesn't automatically mean a market pullback is nigh. But it's
happening now, and when you see it alongside a big crop of
extended stocks out there, it raises the odds of a market
pullback. If you're holding on to some winners, it's OK to give
them more room to work. Just recognize that yellow flags are out
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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