Weekend Update – Happy Easter!

Nasdaq Composite 3/30/13

The Nasdaq Recap

The Nasdaq Composite finished this week up 0.7% on volume that was 28% lighter than usual. This was pretty much a throwaway week as many traders checked out early to start their Easter holiday. The index lost its 10 day line on Monday when it fell in its highest volume of the week, which was still well below average. It recovered on Tuesday and retook the 10 day line, then continued higher on Wednesday and Thursday. Wednesday saw the lightest volume so far this year, but the market was able to shake off some poor economic news on Thursday.

While the action this week doesn’t do much to reassure us moving forward, it wasn’t negative either. In a light volume week, we are pleased to simply tread water. We would much prefer to see the big up weeks come in strong volume.

Leading Stocks

CaesarStone Sdot-Yam (CSTE)

CSTE was up 6.8% this week on volume that was 85% better than normal. The stock barely moved on Monday and Tuesday, then jumped 2.4% on Wednesday in monster volume. It continued higher in volume on Friday, but it did close near the lows of the day. CSTE is currently well extended from a first stage flat base that it broke out of in December. The company makes quartz countertops.

In its most recent three quarters, CSTE has reported earnings growth of 30%, 30%, and 68% as well as sales growth of 14%, 5%, and 14%. Jumping earnings growth from 30% to 68% is the driving force behind the stock’s powerful move. Annual earnings are projected to continue growing by 13% this year and another 19% next year. Fund ownership is small, but growing steadily. Return on equity is very strong at 24% and the stock is in a very strong industry group.

Carriage Services (CSV)

CSV is one of the most impressive, parabolic charts I have seen. The stock continued higher this week, jumping 5.5% in volume that was 27% above average. It was up in strong volume in each of the four trading sessions this week. CSV is currently extended from a second stage flat base that it broke out of at the beginning of this year. The company is in the funeral and cemetery business.

In the past three quarters, CSV has reported earnings growth of -27%, 60%, and 140% as well as sales growth of 5%, 14%, and 13%. There is a strong trend of increasing earnings growth. Triple digit earnings growth is what drove many of the biggest stock market winners of all time. Annual earnings are projected to be up 33% this year. The company’s return on equity is only 12%, which is slightly below what we like to see, but it is increasing fund ownership and is in an industry group that is performing very well.

Green Mountain Coffee Roasters (GMCR)

I was back and forth over whether or not to include GMCR because of all the overhead supply, but it is getting harder and harder to ignore the strong uptrend that has taken place since the company named a new CEO in December. The stock has retaken both its 50 and 200 day moving averages and is continuing to climb higher.

Back in 2011, the company logged triple digit earnings growth in three of the four quarters and reported 96% growth in the other quarter. Since then, earnings growth has slowed dramatically. GMCR reported earnings growth of 33%, 6%, 36%, and 27%. Annual earnings are projected to be up 18% this year. Fund ownership has increased in the company’s most recent quarter, but is still down over the past year. Return on equity is a tick better than average at 18% and GMCR‘s industry group is right inside of our target range.

Top Performing Sectors

We continue to see strength from Transports and Biotech this week. They have been leading the Fidelity and SPDR funds respectively ever since I switched to this Weekend Update format a few weeks ago.  The Building sector is still ranking strong as well. It is interesting to note that Insurance and Health Care seems to be showing up a little more each week. That is something we will want to keep an eye on.

Top Five Sectors

1. Office, 2. Media, 3. Transport, 4. Finance, 5. Building

Top Five Fidelity Sector Funds

1. Biotech, 2. Transport, 3. Air Transport, 4. Health Care, 5. Insurance

Top Five SPDR Sector Funds

1. Transport, 2. Biotech, 3. Homebuilders, 4. Insurance, 5. Healthcare

Stock Setups To Watch This Week

There still aren’t a whole lot of good looking setups. Here are two less than interesting base formations, but for the most part I am holding out for something that looks more traditional.

Generac Holdings (GNRC)

GNRC appears to be forming a third stage consolidation of some sort after a failed breakout from a third stage cup base in February. The new consolidation has a pivot point of 41.40, but it has three weeks of distribution and only one week of accumulation. The combined risk of a third stage base, more distribution than accumulation, and the fact that the stock is consolidating below its 10 week line makes this an extremely risky situation.

GNRC only posted earnings growth of 14% in its most recent quarter. It’s most recent three quarters saw significantly less growth than the previous three quarter stretch. Annual earnings are projected to increase 0% this year and only 6% next year. On the bright side, fund ownership is increasing, and the stock’s industry group is just outside the range of groups we target.

Resmed (RMD)

RMD has formed a second stage cup base with a pivot point at 48.47. The base contains two weeks of heavy distribution and two weeks of light accumulation. All four of those weeks closed at the low of the weekly range. The company also named a new CEO while this base was forming.

In the past three quarters, RMD reported earnings growth of 38%, 42%, and 23% as well as 9%, 8%, and 13%. Annual earnings are projected to increase 17% this year. The company has seen increased fund ownership over the past year, but has just an average return on equity of 17% and is in an underperforming industry group.