Indexes Look Weak, But Leaders Aren't Paying Attention

07/19/11 08:53:49 AM

by Matt Blackman

Indexes like the Russell 2000, S&P 500, and DJIA have encountered strong selling pressure again, but the market leaders are acting downright frisky.

Security: TZOO
Position: Buy

Since hitting new highs in late April, the major stock market indexes have struggled under the combined threat of European sovereign debt defaults and a rating agency downgrade of US government debt.

But a number of market leading stocks tracked by the Zanger Report newsletter have been dancing to a different tune, and this is a bullish omen for the market.

FIGURE 1: AAPL, DAILY. Here, Apple is recovering from a four-month correction to put in new highs. A number of other market leaders are doing the same. If AAPL reports strong second-quarter earnings, it could continue its current trajectory for a while.

Graphic provided by: www.ChartPattern.com.

Traders, especially those playing the shorter time frames, need to focus on stocks that offer the greatest profit potential. In a rally, they are the stocks moving ahead of the pack.

Other than AAPL (Figure 1), Zanger has been tracking Wynn Reports (WYNN), which is also hitting new highs. Stocks putting in bullish chart patterns in recent newsletters are Sina.com (SINA), Baidu.com (BIDU), Amazon (AMZN), VmWare (VMW), SodaStream (SODA), Priceline (PCLN), Tractor Supply (TSCO), and Caterpillar (CAT).

FIGURE 2:TZOO, DAILY. Here, Travelzoo is showing the bullish mini cup & handle pattern with a recent breakout.

Graphic provided by: www.ChartPattern.com.

Precious metal exchange traded funds (ETFs) such as iShares Silver Trust (SLV), ProShares Ultra Silver (AGQ), and GLD and some energy funds such as Holders Trust-Oil Service (OIH) and the Direxion Energy Triple Bull (ERX) look promising. This group should continue to enjoy a lift as long as uncertainty over the US debt ceiling remains. And once the ceiling is removed, greater debt will add increasing inflationary pressure and further fuel the interest in commodities.

Travelzoo (TZOO), which was nearly cut in half from above $100 in April to the low $50s in June, put in a small cup & handle pattern and just broke above handle resistance around $80 on July 18. See Figure 2.

Stocks have been volatile over the last few months but as long as a group of stocks continue to defy gravity, traders who know how to find and play them can make money.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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Indexes Look Weak, But Leaders Aren't Paying Attention

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