It's been nothing but market chop since U.S. major averages kicked off the week with strong gains, not an easy environment to make money by any means.
As former leaders face selling pressure, others are making a case they will lead anew when the market starts a new uptrend again. The question is when will new money start to come in from the sidelines? It won't if the euro and U.S. dollar continue on their recent paths.
The euro hit a 22-month low against the dollar Thursday. The dollar recently broke out over its Jan. 13 intraday high of 81.78. That the dollar broke out doesn't mean it's guaranteed to move higher. After all, who knows what the next headline out of Europe will be that could either fuel buying or selling in the euro. But for now, the path of least resistance for the greenback is up.
While most growth stocks continue to toil underneath their 50-day SMAs, one reclaimed the line Thursday while another recently enjoyed a nice bounce off the line.
Athletic apparel maker Under Armour (UA) remains a high-multiple stock, but it's showing impressive chart action and it has strong fundamentals as well. It's been consolidating gains for nearly five weeks and continues to build a nice base. I'd like to see a bit more accumulation in the stock (above-average volume gains). If that comes, it could eventually set the stage for a nice upside breakout.
I'm usually not a big fan of decelerating sales growth -- and Under Armour shows it for two-straight quarters -- but I still believe the positives outweigh the negatives here. I especially like the fact that full-year profit is seen rising 28% this year and 27% in 2013. A consolidation like Under Armour's normally takes at least six weeks to complete, so I'll wait for the base to finish. If a buy signal comes from the market soon, Under Armour could continue its outperformance. But only if institutional buying (heavy volume) is behind the breakout.
Meanwhile, GNC Holdings (GNC), a former holding in my Ultimate Growth Stocks newsletter and model growth portfolio, continues to attract buying interest. It's a stock I might revisit soon, especially if the market tells me to. GNC is a specialty retailer of health and wellness products.
In late April, the FDA sent warning letters to manufacturers of DMAA, a pre-workout stimulant carried by GNC and other vitamin and supplement retailers. Deutsche Bank analyst Charles Grom said GNC derives about 2% of its total revenue from DMAA product sales, so even if DMAA is ultimately pulled, it won't have a material impact on GNC's bottom line and top line.
GNC went public in April 2011 at $16 a share. It's been a great performer, and I believe it can continue to lead. What I like most about GNC is that sales growth has been accelerating in recent quarters. In its latest reported quarter, earnings jumped 82% from a year ago while sales grew 23% to $624.3 million, the fifth-straight quarter of accelerating growth.
Chartwise, GNC recently enjoyed a nice bounce off its 10-week moving average. It's been consolidating gains for nearly four weeks. As of Thursday's close it was only about 5% from its recent high. Similar to UA, I'd like to see GNC consolidate for a while longer.
Even though Under Armour and GNC are making a case that higher prices could lay ahead, they're still not ready yet. But I'm willing to be patient and will wait for major averages to confirm a new uptrend. When new institutional buyers start to come in from the sidelines, these two names could be beneficiaries.