Two to Watch

After a nice day of gains for the market Tuesday, it would be nice to think that things will settle down a bit, but that's probably too tall an order for a market where volatility still reigns supreme. It's not easy to take long positions with conviction, nor is it easy to go short with conviction. It's been this way for a while. What's clear to me now is that the market foundation remains shaky at best, especially after two days of ominous selling on Thursday and Monday. The Nasdaq Composite outperformed Tuesday, rising 0.6% on volume of nearly 1.6 billion shares -- below average but higher than Monday. Another reminder that higher-volume gains and lower-volume declines for the major averages from here would be a sign of improving market health. The two-day European Summit takes place on Thursday and Friday, and while most aren't expecting much from the meeting, that doesn't mean the market will automatically head lower. I'm staying open to the possibility of additional strength in the near-term. On Tuesday, Wall Street decided to focus on U.S economic data -- namely, a good reading from the S&P/Case-Shiller 20-city composite index. The index gained 1.3% in April, with 19 out of 20 cities registering gains. Year over year, prices fell 1.9%, the smallest drop since November 2010. I wrote about two of my favorite homebuilding plays in this space yesterday before the open: iShares Dow Jones U.S. Home Construction Index Fund (ITB) and Ryland Group (RYL). Both issues outperformed nicely Tuesday, with gains of 3.2% and 3.9%, respectively. ITB could try for a breakout soon. Ryland Group, meanwhile, is still within buying range after its recent breakout over $23.70. Despite the recent damage done to growth names in general, I'm impressed by how many continue to hold above their 50-day simple moving averages. Names such as Zumiez (ZUMZ), TransDigm Group (TDG), LivePerson (LPSN) and Align Technology (ALGN) come to mind. I'm seeing several other names that have a chance of outperforming if the market ramps up again. Coinstar (CSTR), for example, recovered nicely off its lows Tuesday, rising 0.2%, to $65.53, on heavy volume. Coinstar (CSTR) Source: StockCharts.com View Chart » View in New Window » Late Monday, shares got hit in after-hours trading after the company closed its acquisition of NCR's (NCR) Blockbuster video kiosks but said that the deal will have a significant negative impact on 2012 earnings. The stock's performance Tuesday tells me that there's still good support out there. Headed into Wednesday, Coinstar was sitting just underneath a swing point of $67. Meanwhile, Internet domain company VeriSign (VRSN) continues to show uncanny strength as shares remain under accumulation. The company, with a market capitalization of $6.9 billion, shows consistent earnings and sales growth in recent quarters, and growth prospects look good. It's expected to earn $1.86 in 2012, up 25% from 2011, and $2.20 in 2013, up 18% from 2012. VeriSign (VRSN) Source: StockCharts.com View Chart » View in New Window » Recent price and volume trends in VeriSign tell me that the stock could try to take out the $44 level shortly. It's currently forming what's known as a high handle in a bullish cup-with-handle chart pattern. Some sellers have exited the stock since June 19, which could result in additional strength. VeriSign has the look of a potential leader. Let's see if the market lets it run here.

Two to Watch

Coinstar and VeriSign have a chance of outperforming if the market ramps up again.

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