Weekend Update – More Distribution Breeds Concern

Nasdaq Recap

Nasdaq Composite 3/23/13

The Nasdaq Composite was down 0.1% this week in volume that was lighter than last week and slightly below average. It also closed the week at the top of its weekly trading range. While those are positive signs, it also recorded distribution days on Tuesday and Thursday, bringing the count to 4. The selling on increased volume on Tuesday and Thursday was very concerning, however the index saved itself on Friday by rallying back to its 10 day moving average on strong volume. Things could go either way from here, another distribution day could bring pressure on the current uptrend, however if the stocks have a strong week, we could just be seeing the market catch its breath.

Leading Stocks

I noted the strength of FLT and AWAY multiple times on twitter this week. These two stocks have continued higher despite the caution in the general market. In addition to those, LNKD also appeared strong this week and continues to have the best earnings of any leading stock.

Fleetcor Technologies (FLT)

Fleetcor Technologies (FLT)FLT was up 9.1% this week on volume that was 50% above average, breaking out of a three weeks tight pattern and bouncing off of its 10 week moving average line. The stock was down in light volume on Monday and Tuesday, then up on light volume on Wednesday. It took off like a rocket on Thursday and climbed even higher on Friday with both days putting in incredibly strong volume.

In its most recent three quarters, FLT has reported earnings growth of 28%, 48%, and 46% as well as sales growth of 28%, 39%, and 45%. The increase in growth in its most recent quarter is a very strong sign. Annual earnings are expected to grow 21% this year. The company has a very strong return on equity of 30% and has increased fund ownership dramatically in the past year, but is in a severely underperforming industry group.

Homeaway Inc (AWAY)

Homeaway Inc (AWAY)AWAY was up 9.2% this week on volume that was 57% above average. The stock is now well extended from the first stage cup with handle base that it broke out of at the end of February. It was down slightly on light volume Monday, then up slightly on Tuesday and Wednesday. On Thursday and Friday the stock really took off and some serious volume kicked in. AWAY closed at the very top of its weekly range, but still has a good amount of overhead supply to contend with.

In it’s most recent quarter, AWAY reported earnings growth of 100% and sales growth of 22%. The triple digit earnings growth was a huge jump from the 22% growth it reported the previous quarter. Annual earnings are projected to increase 33% this year and then another 25% in 2014. The company has increased fund ownership in each of the past four quarters, but has an inferior return on equity of 8% and is in an underperforming industry group.

Linkedin Corp (LNKD)

Linkedin Corp (LNKD)LNKD was up 2.2% this week in volume that was 27% lighter than normal. After spending most of the week in the red on light volume, the stock jumped 3.7% in above average volume on Friday to finish at the top of its weekly trading range. LNKD is well extended from a first stage cup with handle that it broke out of at the beginning of the year.

Earnings are still the top story with LNKD. In its most recent three quarters, the company reported earnings growth of 45%, 267%, and 192% as well as sales growth of 89%, 81%, and 81%. Annual earnings are projected to grow by over 50% this year and again next year. The company has also more than doubled fund ownership over the past year. At 13%, LNKD has a slightly lower return on equity than we like to see, and its industry group is just outside of the range we target.

Top Performing Sectors

Once again this week we see lots of strength coming from Transports and Builders. It is also worth noting the strength from Finance and Biotech.

Top Five Sectors

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

Top Five Fidelity Sector Funds

1. Biotechnology, 2. Air Transportation, 3. Tansportation, 4. Insurance, 5. Brokerage & Investment

Top Five SPDR Sector Funds

1. Transportation, 2. Homebuilders, 3. Aerospace & Defense, 4. International Telecom, 5. Consumer Discretionary

Stock Setups To Watch This Week

Lumber Liquidators (LL)

Lumber Liquidators (LL)LL was up 0.1% this week on volume that was 39% lighter than normal. The stock has formed a three weeks tight pattern with a pivot point of 68.38. This is the first entry point since the stock broke out of a first stage consolidation at the end of January. The stock pulled back slightly on Monday and Tuesday, jumped up about 1% on Wednesday, then pulled back on Thursday and held tight on Friday. The entire week was on below average daily volume.

In its most recent three quarters, LL has reported earnings growth of 126%, 77%, and 67% as well as sales growth of 20%, 19%, and 21%. While the numbers themselves are impressive, the declining earnings growth is a concern. Annual earnings are expected to be up 28% this year and another 21% next year. The company has a strong return on equity of 21% and has increased fund ownership in each of the past four quarters, but it is in an underperforming industry group.

Celgene (CELG)

Celgene (CELG)CELG took a dive below its 10 day moving average on Monday and Tuesday, but recaptured it on Wednesday and was able to close out the week with a gain of 0.6%. The entire week saw very light volume. This was the third week in a row of tight closes, which has formed a three weeks tight pattern with a pivot point of 115.54. The stock is well extended from the first stage flat base that it broke out of at the beginning of the year.

In its most recent three quarters, CELG has reported earnings growth of 37%, 26%, and 26% as well as sales growth of 16%, 14%, and 13%. These numbers are a little lower than we would like to see and the downward trend is something to be cautious of. The stock has a dynamite return on equity of 39%, has increased fund ownership over the past year, and is in a strong industry group.