Commentary: Like a dirty penny, Euroland’s problems won’t go away
By Kevin Marder
LOS ANGELES (MarketWatch) — Shares, alternating between a focus on the slowing U.S. economy and the potential for a spread of the Eurozone debt crisis, continued their low-volume slide for the third session Tuesday.
Unlike the previous two outings, the Nasdaq Composite COMP -0.26% found support right after the open, and trended higher throughout the day, going out near its high. Down-early, up-late is a plus.
The final week in August and the first week of September are two of the most-popular vacation periods of the year. Thus, there is no special significance being attached to the light activity of late, which normally would indicate investor uncertainty.
The market’s behavior of the past few sessions is not unexpected given the extended nature of its prior advance, in which the averages moved up seven times in eight tries. At this juncture, it is most important that a position trader dispense with any personal bias as to market direction, and simply let the market tell its own story.
This column’s 50,000-foot view has been that if the country’s most extensive money creation exercise in recent times has not created substantial jobs growth, take away that stimulus and it is logical to expect economic recession.
With that said, this column does not operate on the notion that successful speculation is a function of personal opinion or prediction. The simple reason for this is that price normally discounts the coming six to nine months’ worth of expectations into today’s prices. Therefore, emphasizing the current economic backdrop at the expense of the market’s price/volume behavior ignores the precedent set by decades’ worth of market history.
At some point, then, the averages will bottom, if they haven’t already. One thing that is certain is that the bottom will occur amid gloom and widespread disbelief. This is how bull markets are born.
The advantage, then, in simply observing the price/volume behavior of the major averages and the action of the leading stocks is that they are normally leading indicators of the economy.
Whether a bottom occurred Aug. 9 intraday or will occur months or years from now will not be knowable with absolute certainty until well after the fact.
On a relative basis, growth stocks generally perform well during periods of slow economic growth. The current period is hewing to this script: Since Aug. 19, the growth-oriented Nasdaq Composite has risen 5.6% versus the 3% rise of the Dow Jones Industrial Average DJIA -0.90% .
Otherwise, recent columns have highlighted certain growth stocks that have been quietly outperforming the averages.
Thursday’s report mentioned Zillow Z -1.97% as not being buyable given the lack of support technically within its cup-shaped base, as shown below. It was also mentioned that a pullback of some sort would first need to be seen before a pivot point is established. The stock is now a couple of days into a pullback that has the look of a “handle” to go with its cup. For aggressive speculators, a potential entry might be upon a breakout of the 9/1 high of 37.99, circled in the below chart. Such a breakout should be accompanied by strong volume on the breakout day, ideally at least 40% or 50% above the stock’s average daily volume.
Alexion Pharmaceuticals ALXN +5.19% , mentioned in both of last week’s reports, and with earnings estimates of 30%/37% for 2011/2012, according to most analysts, hit a new high Tuesday on volume 38% above average. Technically, the move was a breakout of a mini-cup-with-handle base that had lasted six weeks, as the below chart shows.
