Follow The Leader
The hope inspired by Wednesday's opening gap up was quickly disposed of by a steady down trend in all major indexes, which took out yesterday's lows and position the S&P a fraction off of its 50 day MA. While the primary action definitely signals distributional selling, I've noticed several leading stocks holding up well relative to the broad market in terms of price/volume action:
Wisdomtree Investments (WETF): The constructive action in WETF goes back to the beginning of this correction on 5/22 and 5/23.
Wisdomtree Investments (WETF): The constructive action in WETF goes back to the beginning of this correction on 5/22 and 5/23.
- First, what looks like a dramatic sell-off on 5/23 is actually a constructive reversal pattern as support came into the stock in the form of huge volume right at the 50 day MA support area.
- Secondly, WETF bounced nicely off of it's 50 day MA once more last Thursday and Friday on it's two largest up volume days since early March.
- Finally, WETF has handled the market weakness we've seen over the last two days about as well as one could hope for. Although it has retraced back to support at its 50 day MA, it has done so in much lighter volume relative to its prior upward bounce. Notice the level of volume on 6/6 and 6/7 relative to the last two days.The next two days should provide additional clarity as WETF looks for support at its 50 day MA for the second time in under 10 trading days. A breakdown below the 50 day MA and the upward trend line will warrant concern.
Web.com Group (WWWW): WWWW broke out of a 3 week tight pattern on 6/7 supported by strong volume.
- Notice the volume contraction on the chart during the tight consolidation prior to the breakout. This is constructive sign prior to a high-volume breakout.
- If volume comes in to support this stock at its upward trend line, it could be poised to break upward resistance depending on broad market action.
Additional leading stocks holding their ground:
Leading stocks can serve as a great indicator to the action of the overall market, so the past few day's action in many leading names can be viewed as constructive. However, 75% of stocks follow the broad market on average, so necessary caution must be paid to the overall market action in the coming days.
Plan of action:
- CBOE Holdings (CBOE): High volume 6/6 and 6/7 breakout holding up well on decreasing down volume.
- Financial Engines (FNGN): Huge volume 6/10 breakout has retreated on light volume.
- Standard Motor Products (SMP): Pullback on very light volume in the midst of a strong uptrend.
- Chuy's Holdings (CHUY): Managed to hold its gains from a 6/10 breakout. Closed down yesterday in very light volume and closed up in the midst of downward pressure today.
- Krispy Kreme Doughnuts (KKD): Up volume outweighing down volume convincingly.
- Fiesta Restaurant Group (FRGI): Consolidating very constructively, even closing up today.
- Texas Roadhouse (TXRH): Consolidating very tightly since gap up breakout on 4/30. Declining volume throughout the pattern into this week is a positive sign.
Leading stocks can serve as a great indicator to the action of the overall market, so the past few day's action in many leading names can be viewed as constructive. However, 75% of stocks follow the broad market on average, so necessary caution must be paid to the overall market action in the coming days.
Plan of action:
- Hold off on new positions until the broad market confirms a direction. Should we see a break of support in the S&P, consider closing out winners.
- Consider tightening stops below key support areas for your winning positions.
- Continue your research routine. Opportunities often present themselves out of market corrections.
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