Turn Off the Noise

 | Feb 01, 2012 | 7:30 AM EST
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There's a lot of noise in the market now, especially when it comes to the European debt crisis, the underlying health of the U.S. economy and the upcoming presidential election. For an individual investor, too much noise is a bad thing because it ultimately results in inaction and missed opportunities.

I had an epiphany of sorts last night when I was looking at charts of the Dow Jones Industrial Average, S&P 500 and Nasdaq. Clearly, market sentiment is as good as it's ever been in recent memory, and the major averages have been acting well since the beginning of the year. You don't have to be a technician to know that.

I rarely use monthly charts in my technical analysis work, but the monthly charts for the indices look very similar. Also, it looks as if the bulls have plenty of ammunition here.

In August, the Nasdaq fell 6.4% in strong volume. On the surface, it looked like an unequivocal month of distribution for the tech index, yet the Nasdaq closed in the top half of its trading range for the month. Buyers lifted the index off its lows for the month. From there, the Nasdaq showed two months of accumulation -- one in October and one in January. The entire base structure shows seven down months and two up months -- not the best of signs -- but the monthly gains in October and January came in higher volume.

Source: StockCharts.com

The bottom line is that the Nasdaq's current technical picture is bullish, not only because of its higher-volume monthly gains, but also because of its current 'U'-shaped structure that began in early May. This pattern has yielded technical breakouts throughout market history. The Nasdaq's recent high of 2,887.70 is clearly in play.

I'm also encouraged by the number of strong charts in individual stocks. A market that's about to break down would not have so many bullish setups. I wrote about three of them earlier this week at Real Money.

Las Vegas Sands (LVS) will report its quarterly numbers after today's close, and buyers have been coming into the stock ahead of the results. Macau and Singapore are big growth areas for the company, and Las Vegas Sands plans to open new casino, hotel and retail space in the Cotai area of Macau starting in March.

One yellow flag is that sales growth has decelerated in recent quarters from 58% year-over-year growth in the first quarter, 47% growth in the second quarter and 26% growth in the third quarter. Analysts see the company's fourth-quarter profit rising 36% from a year ago to $0.57 a share with sales up 22% to $2.46 billion. At the end of the third quarter, the company had a cash trove of $3.95 billion.

Its monthly chart shows sideways movement since December 2010. If the results are strong enough, I wouldn't be surprised to see the stock try for a breakout above $50.49. Shares closed Tuesday at $49.11, down $0.18 in light volume.

Source: StockCharts.com

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Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
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