Standouts From the Rally

 | Aug 24, 2011 | 9:30 AM EDT  | Comments
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I've been waiting patiently for a sign of strength by the market to confirm a new uptrend -- and I finally saw one on Tuesday, when the Nasdaq followed through convincingly with a big percentage gain in higher volume. Volume on the Nasdaq came in at just over 2.1 billion shares, above Monday's level of 1.95 billion. Of course, it would've been nice to see a 3-billion-share day on the Nasdaq, but volume came in higher than the prior session, and that's all that matters.

 

The Nasdaq's follow-through day occurred on the 11th session of a rally attempt that started on Aug. 9. On that day, the index's intraday low was never undercut, so the rally remained intact. Historical precedent shows that a follow-through day is the most powerful when it occurs between the fourth and seventh days of a rally attempt. This one was on the late side, but there are examples of follow-through days that occurred outside this window that launched decent rallies.

Tuesday's strong performance by the Nasdaq means the market tide is flowing positive again. This should translate into profit opportunities, especially in select growth names. I'm a big believer in raising cash during market downtrends and putting money to work when the market has reversed upward again. I try to swim with the market tide as much as possible -- that makes it much easier to make money. I can't say for certain where the follow-through day will take stocks, but the market tide is flow-positive for now. With any luck, Friday's second estimate for second-quarter gross domestic product won't hold any big surprises, and Fed Chairman Ben Bernanke will have soothing words for the market.

It's always good to see scads of stocks breaking out from sound bases on or around a follow-through day. Unfortunately this wasn't the case Tuesday, with the exception of one name: Hansen Natural (HANS) broke out powerfully from a seven-week base, rising 6.2% to $84.75 in heavy volume. Recent price action its chart has been picture-perfect, especially between Aug. 12 and Aug. 22, when it traded tightly ahead of Tuesday's breakout.

Two other stocks could also be beneficiaries of the Nasdaq's follow-through day. Apple's (AAPL) pullback has been fairly well-contained, and the stock has firmed up nicely at its 50-day moving average. On Tuesday, shares jumped 4.8% to $373.60. Volume was slightly above average. MasterCard (MA), meanwhile, also has found support recently at its 50-day moving average. Shares soared 5.4% to $322.39

When it comes to other growth names on my radar, potential leadership is not yet defined. That means it's not easy to find actionable buy candidates. It's nice when the market offers up a slew of buying opportunities, but that's not the case at the moment.

I see several bull market leaders with potential, but keep in mind that many experienced some significant institutional selling starting in early August, and many are still in the early stages of building bases. They'll need to show more signs of accumulation, or above-average volume price gains, before I can get behind them. I'm talking about names like Intuitive Surgical (ISRG), Netflix (NFLX) and Baidu (BIDU), to name just a few.

Finally, I wanted to make a quick comment on gold. The metal fell $30.60 to $1,861.20 an ounce on Tuesday, and SPDR Gold Trust (GLD) -- which trades at approximately one-tenth the price of an ounce of gold -- lost 3.75% to $177.67. Volume was just above 54 million shares, the heaviest for a down day in several months.

No one was surprised to see a pullback in the GLD. Headed into Tuesday, it was quite extended from its last buying area of $151.86, its June 22 intraday high. Still, when it comes to the gold miners, I believe it's too early to give up, given that many appear as if they could still be in the early stages of nice price moves.

There was some pretty good selling in the gold-miner group Tuesday, but one day of selling doesn't mean the sector is doomed -- especially since it's chock full of stocks with outstanding fundamentals showing bullish signs of accumulation in recent weeks. These names include Buenaventura (BVN), MineFinders (MFN) and Eldorado Gold (EGO), just to name a few. Peru-based Buenaventura slipped $0.03 on Tuesday to $44.71, and it's still holding above a buying area of $43.43. Minefinders closed at $16.45, down $0.50, having recently broken out above $15.60. El Dorado, for its part, gave back $1.03 to $19.17, but it's still holding above its last buying area around $18.98.

I'll change my view of the miners if heavy-volume selling persists in the group. But, for now, it's too early to declare the group dead.

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