5 Market Leaders to Keep an Eye On
WINDERMERE, Florida (Stockpickr) -- Time and time again, I have seen the market shake out the weakest hands right before it makes its next big move. This is simply the way that markets work, in a devious manner designed to fool the most people at any given time.
That's why it's so important to leave your emotions at home, or wherever you like to leave them when trading on Wall Street. If you get too emotionally involved in your positions or in stocks in general, then you can expect to miss big moves and make the wrong portfolio or trading decision at the absolute worst times.
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Right now, a lot of traders are talking about a correction that could be in the cards in the near future. But presently the market is showing no concrete signs of any distribution that would lead to meaningful large correction. Now, that's not to say it can't happen, because it can, but if you want to be a top-notch market player, it's better to wait to see the signs of a coming correction before you just guess one is coming.
A much better strategy than guessing is to follow the current market trend and find the stocks that are trending with the market, not lagging the market. For example, avoid natural gas plays such as the
U.S. Natural Gas Fund
(UNG) - Get Report
because that sector hasn't done much during the commodity bull run we're experiencing. Instead, stick with leading commodities such gold, silver, palladium and platinum, with
SPDR Gold Trust ETF
(GLD) - Get Report
,
iShares Silver Trust ETF
(SLV) - Get Report
,
ETFS Physical Palladium Shares
(PALL) - Get Report
and the
ETFS Physical Platinum Shares
(PPLT) - Get Report
.
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I wouldn't recommend chasing these commodity plays at current levels. Instead, let them pull back to prices that are much more attractive after they've consolidated some of their recent gains. Many of these plays have made parabolic moves recently, but that by no means signals the bull market is over. Buy them on weakness not into the euphoria.
Another group of market leaders during this incredible uptrend have been found in tech names such as
Apple
(AAPL) - Get Report
,
(GOOG) - Get Report
,
F5 Networks
(FFIV) - Get Report
and
Netflix
(NFLX) - Get Report
. All of these stocks have made ridiculous runs, and along the way, they've shaken out so many investors who thought they were too high and due for a fall or correction. This is why it's so important to remove the noise in the markets and just buy the leaders and sit tight. The patience and the ability to detach yourself from the emotional rollercoaster is what bring in the big dollars when trading.
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If the market does decide to experience a mild pullback and not go into deep correction mode, then I would highly recommend that market players focus on only the leading stocks and sectors that have performed the best during this entire market bull run since late August. In fact, if you want to get into some of these market leaders at much cheaper prices, then you should welcome a near term selloff and use it as a buying opportunity to get into the leaders.
To keep things in perspective, a pullback toward the 20-day moving averages on all of the major market indexes would still leave the current uptrend in the markets intact. That level on the
S&P 500
would be 1190, on the
Dow Jones Industrial Average
11,180, and on the
Nasdaq
the 2502 area. Don't get concerned about any selloffs unless you see these levels breached and volume expand dramatically as the markets pull back.
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One more tip on how to know that a correction in the markets isn't going to be severe is if the pullback in stocks remains orderly and controlled. The deep corrections that are more troublesome happen fast and furious and don't let people out. The problematic corrections come with a dramatic expansion of volatility and volume at the top or trading ranges. If you don't start seeing big swings on big volume in the market in the near term, then don't get concerned and worried about a deep correction.
Here's a look at a number of
market leaders that investors should look to buy on any weakness
.
One name that has been a major market leader during this bull run is
Rovi
(ROVI)
, which provides digital entertainment technology solutions for the discovery and management of entertainment content. It offers guidance, home network connection, content protection and media recognition technologies, as well as extensive metadata on movies, music, games, television and books. So far in 2010, this stock has been a big market leader, with shares up 66%.
Just recently, Rovi reported an outstanding quarter that saw revenues rise by 21% to $138 million, beating Wall Street's estimates of $130.1 million. Rovi brought in $36.4 million in the third quarter due to its rapidly expanding business and higher advertising revenue. The company also narrowed its full-year earnings estimates to a range of $2 to $2.10 per share, from $1.90 to $2.10 per share.
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Rovi has a market cap of $5.57 billion and trades at a forward price-to-earnings of 21.29. That might seem like an expensive multiple, but let's remember that in the most-recent quarter, Rovi grew revenue by 21%. If Rovi continues to grow its revenue at a clip of 20% or higher, then that multiple will have plenty of room to expand.
I would view any pullback on this stock toward the 20-day moving average of $50.54 or the 50-day moving average of $48.37 as a buying opportunity. Remember, those moving averages recalibrate everyday, so keep an eye on them as they change when you're looking for buy points.
>>Also:
It's also worth noting that around 6.2% of the tradable float of 104.54 million shares on Rovi is currently sold short as of the Oct. 15 reporting period. I don't understand why anyone is short this stock since it has been doing nothing but trending higher and printing new highs all year.
Another market leader to considering buying off of any noticeable weakness is
Las Vegas Sands
(LVS) - Get Report
, which, together with its subsidiaries, develops multiuse integrated resorts worldwide. This stock has a breathtaking year-to-date performance, with shares up an unbelievable 252%.
>>Who Owns Las Vegas Sands?:
The company recently reported earnings, and management said a new casino in Singapore, combined with growth in Macau, helped the firm swing back into profitability for the third quarter. Las Vegas sands earned $168 million, or 21 cents a share, during the quarter, which trumped its loss of $123 million, or 19 cents a share, during the same quarter from the prior year. Revenue soared 67% to $1.91 billion, crushing Wall Street estimates of $1.79 billion.
Market players should look to buy this leader on any pullback toward some prior support levels at $45 a share or at the 20-day moving average of $43.79 a share. A correction that deep from the stock's current price of around $53 might not even materialize, so don't be afraid to buy it a little higher if the stock never prints down to those levels.
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Keep in mind that more than 13.8% of the float on LVS is currently sold short, so if this stock can get above the next significant overhead resistance level at around $56 a share, then I would look for another powerful short squeeze rally to develop.
Also in the casino sector, I would consider looking at
Wynn Resorts
(WYNN) - Get Report
which just issued an $8 special dividend, and
MGM Resorts International
(MGM) - Get Report
, which is up only 43% year-to-date. My take is that MGM Resorts is going to start playing some catch-up and join the rest of hot casino sector with much bigger returns in the future -- not that 43% is anything to sneeze at.
>>Also:
Once again, we have a situation in which the shorts are betting against both of these stocks with large positions. The bears are currently short 30% of the float on MGM and around 9.1% of the float on Wynn Resorts. Look for a major short squeeze rally in MGM if the stock can manage to trade above some near-term overhead resistance at around $14 a share.
Another market leader that investors should take a serious look at on any pullback or breakout action is
Agrium
(AGU)
. This company is a retailer of agricultural products and services in the U.S. as well as Argentina, Chile and Uruguay and a global producer and wholesale marketer of nutrients for agricultural and industrial markets. The stock has done wonderfully year-to-date, with shares up a respectable 39%.
>>Also:
Now the stock is knocking on the breakout door, with shares trading just underneath some previous overhead resistance at around $89.69 a share. If Agrium trades above that level on any volume that is near or above the three-month average daily action of around 2 million shares, then this stock is going to be positioned perfectly for a major move higher.
I will spare you the details as to why quantitative easing (QE2) and beyond is going to continue to push commodities through the roof. To me, much of that is market noise, I would rather pay attention to volume and price action -- and the volume and price action in Agrium is looking very bullish.
To see more market leaders that are worth buying on any pullback, including
Baidu.com
(BIDU) - Get Report
,
Priceline.com
(PCLN)
and
VMware
(VMW) - Get Report
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
