The second day of a rally attempt for the Nasdaq Composite and
S&P 500 Tuesday had its share of positive qualities. For
starters, volume on the New York Stock Exchange and Nasdaq came
in higher than Monday, giving the rally some credibility. The
"risk-on" trade was clearly in effect as several growth names
bounced back after recent weakness.
Don't be too quick to say the selling is over, because it's
still very early in the rally attempt. Another sign of strength
(later this week or beyond) would be a sign that the market trend
might be ready to turn upward again. From here, it would be good
to see indices follow-through with conviction with a percentage
gain of least 1.5 percent in higher volume. Follow-through days
like this are best seen on the fourth day or later of a rally
The Nasdaq recently undercut its 50-day moving average, but it
reclaimed the line Tuesday. It doesn't mean its trend has
changed, but it was a positive technical development. The Dow and
S&P 500, meanwhile, bounced off their 50-day lines this week:
a positive sign so far for the bulls.
) bulls surely were encouraged by its price action Tuesday as
shares rallied 2.4 percent to $649.79 in higher volume. The stock
isn't out of the woods yet, though. When a growth stock falls
below its 50-day moving average, a former support level like this
can often turn into resistance. Apple's 50-day line is currently
at $661. Tuesday, Apple scheduled a press event for Oct. 23 where
the company is widely expected to unveil a smaller version of the
iPad tablet. Earnings are due two days later on Oct. 25.
Quarterly profit is seen rising 26 percent from a year ago to
$8.89 a share with sales up 29 percent to $36.3 billion. Apple
has missed the consensus earnings estimate in two of the past
four reported quarters.
While recent price action in tech leaders like Apple and
) has been a bit unsettling (Amazon is also trading underneath
its 50-day line) plenty of other growth names with leadership
potential continue to hold up just fine. It's a positive sign
because if the market were really in trouble here, there would be
many more damaged stock charts out there.
), for example, is working on a handle area in a bullish
cup-with-handle base. Shares closed Tuesday at $155.46, just
underneath a swing point (buying area) of $161.90. With the
market still in a downtrend, it remains to be seen if a technical
breakout is in store for CRM, but if indices follow through with
conviction in coming days, buyers could come into CRM
Meanwhile, several other growth names (including many in the
Ultimate Growth Stocks model portfolio) continue to show solid
supporting action with limited sell signals. Michael Kors
) is a good example. Its weekly chart shows the stock firming up
nicely at its 10-week moving average, flirting with a technical
Unfortunately, earnings from Intel (Nasdaq:
) and IBM (NYSE:
) late Tuesday didn't do anything to instill confidence that
concerns about third-quarter tech earnings are overblown. Both
stocks traded lower in pre-market trading Wednesday with IBM
taking the hardest hit.
Big Blue matched the consensus estimate with profit of $3.62 a
share, up 10 percent from a year ago. But sales growth
disappointed, falling five percent from a year ago to $24.7
billion, $1 billion below the consensus estimate. In early
pre-market trading Wednesday, shares slumped 3.9 percent to
$202.75. Its 50-day simple moving average -- a key support level
-- is at $203.
It's really all about earnings this point. There will be good
news and bad news in coming days but as long as the S&P 500's
recent low of 1,425 holds, the rally will remain intact. The
Nasdaq needs to hold above its recent low of 3,037. The bottom
line is that there are too many healthy stocks charts out there
in the universe of growth stocks followed to get too down on this
market. The bull case still holds water.
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