When the Nasdaq jumped 4.3% on Tuesday, the tech index made a case that it was ready to start a new uptrend. But it wasn't the most convincing of cases. For starters, my growth screens were virtually empty of buy candidates with good setups. Technical breakouts from fundamentally strong stocks are always good to see in the early stages of a rally, but they've been virtually nonexistent up to this point -- a yellow flag.
Technical breakouts in heavy volume in the early stages of an uptrend are an indication that institutional investors have moved from defense to offense. It's not happening now, however. Institutions are still playing defense, sending utilities and other defensive groups higher. These groups are typically not the stuff of market leadership. However, it's apparent that investors continue to seek out yield in areas other than bonds, so it makes sense to consider some utility plays.
One of my favorites is ITC Holdings (ITC). The company, with a market capitalization of $3.8 billion, is the largest independent electricity transmission company in the country.
The company has a strong balance sheet with consistent bottom- and top-line growth in recent quarters. Full-year profit in 2011 is expected to rise 17% to $3.33 a share and 22% in 2012 to $4.05.
It has a healthy chart as well. On Wednesday, the stock staged a heavy-volume breakout over $73.22. During Thursday's market decline, it held up relatively well, falling just $0.24 to $74.93.
In the end, I believe ITC works in this environment where growth stocks -- and the market in general -- remain under pressure.
Another name that could continue to work here is American Campus Communities (ACC). It's a real-estate investment trust that has a powerful combination of good yield and relative price strength; not easy to find nowadays. The company develops and operates student housing properties in the U.S. It's a niche market, but niche markets can also be the fuel for nice growth -- and ACC shows it in recent quarters.
ACC has been basing, or consolidating gains, for nearly five weeks. As of Thursday's close, it was holding tight near its highs, showing strength in an uncertain market.
In sum, lack of leadership in the market remains a concern. I wrote about this earlier in the week over on Real Money Pro, but it bears repeating: New leadership will eventually take shape when new institutional money starts to come in from the sidelines with conviction, but the leadership may not come from the usual suspects. For example, when I see Netflix (NFLX) trading underneath its 200-day moving average, I realize that when the market does eventually turn, there will most likely be better growth stocks to buy than this former leader. Keep in mind, Netflix is up more than 400% since March 2009. The run for all big winners eventually comes to an end, and it could be happening now with Netflix.
Meanwhile Baidu (BIDU) and Chipotle (CMG) are working on new bases, holding above their 40-week moving averages, but both have also made huge prices since the start of the party. I have to wonder if they're in the latter stages of price runs as well.