Itching to Punch Through

 | Oct 28, 2011 | 7:46 AM EDT  | Comments
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In the past, it's always been easy to attribute strength in the major averages to short covering, but that doesn't hold water anymore. It might have been true between Oct. 4 and Oct. 6, when indices were coming off their lows -- but no longer.

It's my view that Thursday's big gains in higher volume were indicative of new money coming in from the sidelines, mostly from fund managers and other institutions that have underperformed until this point. Sure, there was retail buying, but volume on the Nasdaq of nearly 2.8 billion shares was the result of big investors putting new money to work. Volume on the NYSE was less impressive at 1.3 billion shares. Still, it was above average, and the highest volume for an up day since the lows were put in on Oct. 4.

Growth investors such as myself have reason to be encouraged. The market delivered some nice upside breakouts Thursday, and there were some strong earnings reports after the close that could fuel additional gains in names such as Deckers Outdoor (DECK) and Baidu (BIDU).

Shares of Deckers rose 3% after the close, on volume of 495,000 shares, after the maker of Ugg sheepskin boots and Teva sandals reported blowout numbers. Quarterly profit jumped 49% from a year earlier to $1.59 a share, while sales grew 49% to $414.4 million. The results handily beat the consensus estimate of $1.35 a share and sales of $387 million. International sales at Deckers rose an impressive 114% to $156 million, while same-store sales in the quarter soared 15.4%.

I was lukewarm on the stock ahead of earnings, but Deckers' earnings were so strong that I can embrace the stock up here. A technical breakout for Deckers, above its recent high of $109.90, could be in play Friday.

Deckers (DECK)
Source: StockCharts.com

On the heels of strong quarterly results from Coach (COH) earlier in the week, Thursday saw Tiffany (TIF) breaking out of a bullish double-bottom structure, or a W-shaped formation. The second leg down in the bas should undercut the first, a move that serves to shake out sellers in the stock. Shares of Tiffany surged 5.3% to $79.49 on volume of 3.8 million shares, clearing a buying area of $77.84. The stock normally trades about 2.8 million shares a day. I added Tiffany to my model growth portfolio yesterday.

Tiffany (TIF)
Source: StockCharts.com

Tiffany isn't due to report earnings until late November, but another strong quarter is expected. Analysts expect profit to rise 30% from a year earlier to $0.46 a share, with sales expected up 18% to $804.1 million.

I was also impressed by the move in SolarWinds (SWI) Thursday -- another solid heavy-volume breakout in an innovative name that could still be in the early stages of a price move. The small-cap name makes network-management software and has top fundamentals solid mutual fund sponsorship -- two key qualities I like to see in a stock. Shares vaulted 16% to $27.90 on volume of 4.5 million shares. SolarWinds normally trades just under 1 million shares a day.

The stock also broke out from a bullish double-bottom base, clearing a buying area of $25.62.

SolarWInds (SWI)
Source: StockCharts.com

Finally, Baidu reported strong numbers after the close Thursday. This stock also could be on the verge of a double-bottom breakout above $150.46. Shares popped 6.9% in after-hours trading to $147.90 on volume of 2.1 million shares.

Baidu (BIDU)
Source: StockCharts.com

Next week I'll watching earnings from recent new issues Dunkin' Brands (DNKN), Fusion-io (FIO) and LinkedIn (LNKD). All three have continued working on first-stage bases of their respective initial public offerings. These bear watching as the market rally gains traction.

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