My growth screens always give me a wealth of information. In bull markets, they give me great buying opportunities. But in an unsettled market like now, they can tell me when to favor cash and stay on the sidelines.
Looking through my screens over the weekend, I got a clear message. Stay on the sidelines. There's just not a lot out there right now in terms of viable buying opportunities, which is why I'm generally keeping my powder dry at the moment.
Growth stocks can generally be grouped into two categories at the moment. There are some that continue to show relative price strength, but are extended in price (too late to buy). Perhaps even more importantly, there are others on the verge of potentially breaking down after lengthy uptrends.
People ask all the time if I use daily charts or weekly charts when analyzing individual stocks. I use both. In fact, I favor weekly charts because they give me a longer-term perspective. I can also get a better feel of institutional buying and selling trends in a stock by looking at weekly volume bars.
When I look at weekly charts of several growth stocks now, I see scads of names that have made big moves already. To me, it looks like the big money has already been made. Names like Lululemon Athletica (LULU), Chipotle Mexican Grill (CMG) and Herbalife (HLF) come to mind. Great companies with great fundamentals with shaky technical pictures at best.
I continue to be concerned about what I'm seeing in the Nasdaq 100 in particular. Names like Apple (AAPL), Amazon (AMZN) and Priceline (PLCN) have weakened considerably in recent weeks despite seemingly solid fundamentals. They are not leaders anymore. I'm having a hard time seeing the market head higher what with all the weakness I'm seeing in the Nasdaq 100.
That said, I do see several growth names with top fundamentals that I believe are in the early stages of upside price moves. Stocks in this boat include Mercadolibre (MELI), GNC Holdings (GNC), Fortinet (FTNT), Rackspace Hosting (RAX) and Fusion-io (FIO). But I'm just not ready to aggressively commit new capital to this market. I'd rather wait for institutional investors to come back into this market so I can ride their coattails. When they do, these stocks should do well.
The current market is also precarious due a persistent lack of upside volume. There has been conviction behind the selling, but virtually no conviction behind the buying. That's always problematic because it makes for a weak foundation where sellers can easily get the upper hand. It's the situation we're in now as institutional money remains hesitant to come in from the sidelines amid so much uncertainty. This makes it easy for sellers to do their thing.
When you take the whole ball of wax, several higher-volume declines for the S&P 500 since Oct. 31, plenty of low-volume rallies and weak action in several leading growth stocks, the risk outweighs the reward. That's why I'm in no rush to commit new capital to this market.
As an individual investor, the goal is to swim with the market tide as much as possible. It's an easier environment to make money. A new market uptrend will start in earnest when institutional money starts to come in from the sidelines in earnest. For that to happen, uncertainty will have to subside. It's everywhere now and until it subsides, I'm in no mood to force the issue with ill-timed buys.