Special Report Series (Part 2) - Leadership Elusive After Confirming Gains

Special Report Series (Part 2) - Leadership Elusive After Confirming Gains
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net

It was covered in the headline and commentary, but an actual chart demonstrating the Dow Jones Industrial Average's 3/20/08 follow-through day was unintentionally left out of Part 1 (published 3/23/08 - read here). A fresh graph was, however, just included in the April 2008 issue of CANSLIM.net News (read here) for anyone who still needs to see the point identified where the blue chip index's rally flashed its confirming gains on higher volume. Since then, the Dow has made additional progress above its 50-day moving average (DMA) line, and the Nasdaq Composite and S&P 500 Index each has also risen above its respective 50 DMA lines. The 50 & 200 DMA lines are key technical marks for the three major indices, and each index is more than +2% above its 50 DMA line now. Collectively, however, they remain under their longer-term 200 DMA lines as listed in the following table:

Nasdaq Composite:
50 DMA 2,303 (+2.6%)
200 DMA 2,562 (-7.4%)

S&P 500 Index:
50 DMA 1,340 (+2.2%)
200 DMA 1,455 (-5.5%)

Dow Jones Industrial Avg:
50 DMA 12,339 (+2.3%)
200 DMA 13,144 (-3.9%)

There is still a hard time making the case for a new Bull Market because leadership has been so elusive. Those who remember prior confirmed rallies that have recently failed are reminded once again that any sustainable market rally requires a healthy crop of fresh leaders. This is why high-ranked leaders meeting each day's mid-day screen results for the CANSLIM.net Mid-Day BreakOuts Report are carefully studied and noted accordingly, and we continue closely watching the number of stocks hitting new highs and appearing on the CANSLIM.net BreakOuts Page. The lack of leadership is a problem which must eventually be resolved, and until then, odds are not seen as especially good for investors seeking to profit greatly from growth stocks. That leadership can emerge at any time, and there is some good news that offers hope for the broader market outlook.

Taking a close look at the high-ranked leaders that are presently in the best shape and sitting near their highs, one of the most frequent missing elements has been volume. Big breakouts backed by very heavy volume have clearly been elusive. Unimpressive volume totals and little price progress has left most of the promising buy candidates that have shown up perched near their highs without making meaningful headway. This generally describes a long list of recently featured leaders highlighted in yellow in CANSLIM.net reports including: MasterCard Inc (MA), Priceline.Com Inc (PCLN), Bois D' Arc Energy Llc (BDE), Central European Dist Cp (CEDC), Greif Inc Cl A (GEF), and Mantech International (MANT).

It would be most reassuring if some of the above mentioned issues showed signs of more serious buy side conviction, accompanied by an expansion in new 52-week highs and more action-worthy ideas meeting the guidelines. If there were a fresh handful of timely ideas meeting our standards right now, this Special Report (Part 2 of the series) would include detailed analysis on several new ideas with annotated graphs. Unfortunately, our extensive analysis has yielded little in the way of new ideas through Thursday's close. Yet, as alluded to earlier, there is some good news! First let's start with the financial sector.

In the summer of 2007, the financial sector started showing signs of weakness. As early as June 20, 2007 weakness in the Bank Index was recognized in the Industry Group Watch section of the CANSLIM.net After Market Update as a worrisome leading indicator that was cause for concern (read here). That report said, "Financial stocks were some of the primary culprits when the major averages suffered a steep correction in the February-March period, when many issues were reeling from concerns raised by failures in the sub-prime mortgage market. Monitoring the action in financial stocks is important because the group has a history of being a leading indicator. More damaging losses in the financial group would not bode well for the market outlook."

Since then, it has been repeatedly noted that the financial group is a reliable leading indicator, and the market averages have a history of being particularly weak and vulnerable whenever financial stocks are struggling. We all should now recognize and agree to the fact that financial stocks led the market into its latest correction. At some point, the financial group is also likely help to lead the market back up.

The ETF that tracks the financial sector is nearly rising above a downward trendline this week, but it needs additional gains to make a clear technical upturn on its chart (below) readily visible. There is a reasonable likelihood that additional gains in the financial sector, helping it put an end to its downward trend, can help the broader market build more upward momentum.

The Advance/Decline line is also at an important juncture now. A rise above its downward trendline would help investors identify a critical improvement in terms of the market's breadth. The same Advance/Decline line has been mentioned in recent "Investing for the New Millennium" columns, most recently in the February issue (read here).

The big question is where the leadership is going to come from. So, to get an answer, we used the CANSLIM.net Leaders List Screening Tool and found that there are presently 101 stocks (out of 365) on the CANSLIM.net Leaders List that are trading at or within 5% of new 52-week highs. More than likely, there are several companies among them that will eventually demonstrate bullish action warranting additional coverage in future reports. The above mentioned screen results are included below:

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM^® Certification Program. Mr. Gruneisen is a Registered Principal and manages a Source Capital Group Member FINRA,SIPC) branch office offering personalized assistance. Investors with a significant financial interest in equities may inquire about opening an account by calling the office locally at (954) 785-1990 or 1-888-237-8399 or emailing to
kgruneisen@sourcegrp.com. Further information is always available upon request. Contact us if you know anyone that may have an interest in receiving this or any of our other reports.
The recommendations made by CAN SLIM^® certified individuals are their own and may not be attributed to the CAN SLIM^® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM^® Certification indicates only that the individual has successfully completed the CAN SLIM^® Certification Program. CAN SLIM^®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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