Weekend Update – Back To Confirmed Uptrend

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The Nasdaq Recap

The Nasdaq jumped 2.8% this week, but volume came in just slightly lighter than average. The index was up on Monday and Tuesday, and then shot much higher on Wednesday to log a follow through day. It wasn’t all good news though, because the index stalled on increased volume Thursday and then lost ground Friday. Despite Friday’s loss, it was able to close at the high of the day.

While the markets are at all time highs, many investors are questioning the current lack of strong leadership. This market appears to be driven more by the printing of money than actual economic growth, but the trend following crowd would argue that the price action is the only thing that matters. I believe the truly intelligent investor will see both sides here and follow the price while remaining cautious of this rally’s flaws. There were reasons to be concerned in 1999 as well, but that doesn’t mean you should have been on the sidelines.

There is a long list of companies scheduled to report earnings this week. How those earnings come in and how the market reacts to them should give us some idea of the direction things will move in the next few weeks.

Leading Stocks

Celgene (CELG)

This was the eighth straight positive week for CELG, although the past six have been in light volume. The stock has been on a very impressive run since breaking out of a first stage flat base at the beginning of the year. This stock is one of the key reasons that the Biotech sector continues to perform well.

CELG has been consistently reporting solid, but not mind blowing earnings and sales numbers. That trend will likely continue as the company projects annual earnings growth of 16% this year and 20% next year. Return on equity, fund ownership, and industry group numbers are all fantastic as well.

Green Mountain Coffee Roasters (GMCR)

I have been debating putting GMCR among the leaders for weeks, but have held off because of the lingering overhead supply. While we can’t ignore how far the stock has fallen, we also can’t ignore the relative strength it has shown in recent months. The stock has been incredibly strong ever since the company named a new CEO at the end of November.

In its most recent quarter, the company reported earnings growth of 27% and sales growth of 16%. Annual earnings are expected to grow 18% this year. Return on equity, fund ownership, and industry group numbers all look good as well. The company is scheduled to report earnings again on May 8.

Linkedin (LNKD)

LNKD had a nice bounce off of its 10 week line this week, but volume was lighter than average. The stock has continued to show strength after its monster weeks in early February following its last earnings report.

Earnings growth has been off the charts in recent months, jumping triple digits in four of the past five quarters. Sales growth has been impressive as well. Annual earnings are projected to be over 50% this year and again next year. Fund ownership has almost doubled this year, but return on equity is lighter than we would like to see and the industry group is underperforming.

Top Performing Sectors

Despite the market moving back into a confirmed uptrend, the leading sectors appear to be relatively unchanged. As you can see, there are still quite a few defensive sectors making these lists. A truly strong uptrend will need to feature strong performances from sectors that contain strong growth stocks.

Top Five Sectors:

1. Office, 2. Media, 3. Transport, 4. Finance, 5. Real Estate

Top Five Fidelity Sector Funds:

1. Biotech, 2. Health Care, 3. Multimedia, 4. Transport, 5. Utility

Top Five SPDR Sector Funds:

1. International Utilities, 2. Health Care, 3. Utilities, 4. Consumer Staples, 5. Retail

Stock Setups To Watch This Week

Proto Labs (PRLB)

PRLB failed on its attempt to break out of its second stage consolidation this week, but that doesn’t mean it can explode on volume next week. The stock broke out on Thursday in volume that was over 200% faster than average, but it stalled out and closed below its pivot point. Friday saw the stock pull back even further into its consolidation.

Despite the failed breakout attempt, PRLB still has all of the numbers we like to see. Current earnings and sales growth are 121% and 31%. Annual earnings are projected to be up 24% this year and 23% next year. Return on equity is extremely strong at 38% and fund ownership is increasing, but the industry group could be performing better. PRLB is scheduled to report first quarter earnings on April 25.

Ocwen Financial (OCN)

OCN tried to break out of a third stage consolidation at the beginning of February. Since that failed attempt, the stock’s momentum has fizzled and it has spent the past month living below its 10 week line.

While there isn’t currently a base formation, OCN has all of the numbers to back up a breakout if one should form. Current quarter earnings and sales growth are 488% and 51%. Annual earnings are expected to increase 254% this year. The company is expected to release first quarter earnings on April 29, so it is possible that the stock could form a flat base and then break out on positive earnings. That all has to actually happen before we would consider taking a position. That is a long shot, but it might be worth keeping an eye on.