This Trio Could Spark the QQQ

 | Oct 24, 2011 | 9:15 AM EDT  | Comments
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Stock quotes in this article:

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QQQ

I hear people say all the time that the market won't go anywhere without the financial sector. While this may be true, the market will also have a hard time making progress without the Nasdaq 100.

The PowerShares QQQ (QQQ), which mirrors the performance of the Nasdaq 100 on a daily basis, broke out above $57.35 in light volume earlier this month, but weaker-than-expected results from Apple (AAPL) quickly put the kibosh on that. Even though the technical picture of the QQQ is intact, there's no shortage of dead weight in the index at the moment -- names such as Apple, Priceline (PCLN) and Wynn Resorts (WYNN), just to name a few. The good news is that other components could step in and do the heavy lifting -- specifically, three firms scheduled to report earnings this week.

Amazon (AMZN) is scheduled to report Tuesday after the close, and there's a good chance we'll see strong results from the online retailer. Third-quarter profit is expected to come in at $0.24 a share, a 52% decline from a year earlier. That might sound bad, but keep in mind that Amazon has been spending heavily on technology and distribution, which has hurt earnings in recent quarters. Growth on the top line, however, continues to impress. Sales are expected to rise 45% to $10.9 billion.

Amazon shares firmed up last week at their 20-day moving average, and they continue to hold nicely above the 50-day moving average. The stock has rallied strongly with the market since the Oct. 4 lows, but I haven't seen much in the way of institutional buying here. Most of Amazon's price gains have come on average or below-average volume. Amazon recently broke out above a swing point of $244, but volume was light. Still, a strong quarter can't be ruled out for this company. If it delivers, the news could very well fuel a new breakout -- which, of course, would be good news for the QQQ.

Amazon (AMZN) -- Daily
Source: StockCharts.com

Meanwhile, biotech Celgene (CELG) is set to report Thursday, and another quarter of strong bottom-line and top-line growth is expected. Third-quarter profit is expected to rise 27% from a year earlier to $0.96 a share, with sales anticipated up 32% to $1.2 billion.

Celgene's key drugs are its blood cancer drugs Revlimid and Thalomid and breast cancer drug Abraxane.

In April 2010, Celgene invested $130 million in privately held Agios Pharmaceuticals. Earlier this month, Celgene extended the deal to four years from three, for another $20 million. Agios and Celgene are collaborating on a new class of drugs designed to starve cancer cells of key enzymes.

Celgene continues to trade well in front of earnings. The stock staged a technical breakout in heavy volume Sept. 20, and it continues to show relative price strength, trading above key support levels. But, rather than chase Celgene ahead of earnings, I'd rather wait and see how earnings look. If Celgene continues to run higher, wait for an orderly pullback in light volume to a support level such as the 20-day moving average.

Celgene (CELG) -- Daily
Source: StockCharts.com

Finally, China-based search engine Baidu (BIDU) is also scheduled to report Thursday. China stocks have been taken to the woodshed en masse in recent weeks and that includes Baidu. Granted, since the beginning of the year there has been pressure on such China indices as the Shanghai Composite and Hang Seng. The Hang Seng is down about 22% year-to-date, while the Shanghai Composite is down 17.5%.

I'm concerned about recent signs of institutional selling in Baidu, especially the action between Sept. 20 and Sept. 30. Perhaps Wall Street is pricing in slower growth ahead. That's what recent price and volume trends in the stock seem to be saying. China's online population is the world's largest, but concerns are legitimate that regulation could hinder future growth at firms like Baidu.

Still, the company is expected to show torrid growth Thursday, and that could bring buyers back into the stock. Quarterly profit is expected to come in at $0.83 a share, up 84% from a year earlier, with sales also expected up 84% to $618.6 million.

Baidu (BIDU) -- Daily
Source: StockCharts.com

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