The current market environment is a frustrating for growth investors like me looking for the next crop of leaders. Indeed, the lack of quality stock charts at the moment is disappointing.
Tuesday marked the sixth day of a rally attempt for the major averages that began on Oct. 4. A follow-through day -- or big percentage gain for the major averages in higher volume -- would be a sign of strength and confirmation of a new rally. Research from Investor's Business Daily shows that throughout market history, the most potent follow-through days have occurred between the fourth and seventh day of a rally attempt. They can occur later, but this is the ideal window.
Several Nasdaq 100 names have been in rally mode in recent days, such as Baidu (BIDU), Priceline (PCLN), Google (GOOG) and Green Mountain Coffee Roasters (GMCR), but the technical health of each remains questionable due to recent signs of institutional selling and not much in the way of institutional buying. In other words, plenty of heavy-volume declines have occurred in recent weeks and they were followed by low-volume gains.
Shares of Apple (AAPL) have come back to life as the stock is back above its 50-day moving average, but no volume has supported its recent rally. Technical analysis 101 says to always be wary of heavy-volume declines followed by low-volume gains. I see a lot of that in the market right now.
Why are institutional investors so hesitant to come back into this market? Are they concerned about prolonged sluggishness for the U.S. economy? Is it more about debt contagion in the euro zone? Or, are institutional investors concerned about a potentially lackluster, third-quarter earnings season? At this point, it's probably a combination of these three issues, although earnings will be the primary focus during the next few weeks.
Aluminum giant Alcoa (AA) did not start earnings season off with a bang on Tuesday. The company missed estimates by $0.07 posting a profit of $0.15 a share, which was a 67% increase from a year ago. Sales rose 21% to $6.4 billion, which was a bit better than expected.
I am still concerned about this market, but I'm paying attention to a few names that I believe have the ability to lead if institutional money starts to come into the market again. If they do, these names should do well due to their strong fundamentals and technical factors. These three have also managed to generally sidestep the institutional selling seen in other growth names, recently.
Visa (V) has been consolidating gains since July. It broke out nicely in heavy volume on Sept. 20, but the breakout was short-lived, impeded by overall market weakness. But, Visa is quietly working its way toward a swing point of $94.75. It's rallying in light volume like just about every other stock , but a new breakout isn't out of the question, especially if the indices start moving higher with some volume. Visa's earnings report is due on or around Oct. 26. The consensus estimate calls for profit of $1.24 a share, up 17% from a year ago, with sales up 13% to $2.4 billion. Shares closed Tuesday at $90.51, up 1.4%.
Meanwhile, Intuitive Surgical (ISRG) also looks good here as it moves closer toward a buying area of $402.35. It needs more volume as well, but has been building a base since July and is a breakout candidate. The company makes the da Vinci robotic surgical system and it has a consistent track record of growth. It's scheduled to report earnings on Oct. 18. Analysts are looking for profit of $2.76 a share, up 29% from a year ago with sales up 21% to $417.8 million. Shares ended the day Tuesday at $385.35, up 1.6%.
Finally, online retailer Amazon (AMZN) could be prepping for a move higher. Its current base is called a base-on-base structure. It broke out of the first base during the week of Sept. 16, but then settled into a new base that's a bit more than three weeks old. Amazon is slated to report its quarterly numbers earnings on Oct. 25. The company's profit is expected to come in at $0.24 a share, down 53% from a year ago. Sales are expected to rise 45% from last year to $10.9 billion. Spending on technology and distribution has weighed on Amazon's bottom line recently. Shares finished Tuesday at $235.48, up 1.8%.