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Market Sentiment (Stocks on NYSE, NASDAQ, AMEX)
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Oct. 3, 2016, 1:17 p.m. EDT

It's time for aggressive speculators to dive into this market

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About Kevin Marder

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is principal of Marder Investment Advisors Corp. and a contributor to The Gilmo Report. Previously, he served as chief market strategist for Ladenburg Thalmann Co. and developed institutional fixed-income risk management software for Capital Management Sciences.

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By Kevin Marder


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Historically, the price-volume behavior of the major averages and the action of the leading stocks have been excellent barometers of general market health. Knowing what the averages and leaders have already done obviates the need for personal opinion, prediction, and crystal balls.

Bill O'Neil popularized this mode of thinking in his book “ How to Make Money in Stocks ,” highly recommended for active share-market participants.

At present, the Nasdaq Composite, the de facto leading index, is digesting its recent 4.8% advance. Distribution, or focused selling, is not worrisome. At the same time, high-beta shares, or those with higher volatility and expectations, have outperformed the S&P 500 for four days in a row, beginning Tuesday.

For a larger chart, please click here .

Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.

For the most part, leading growth stocks continue to act well, showing scant sign of the broadbased breakdowns that would reflect decaying market health. A substantial plus is the buoyant price-and-volume action of Amazon.com /zigman2/quotes/210331248/composite AMZN -5.95% , viewed here for some time as the bellwether for speculative sentiment among institutions.

For a larger chart, please click here .

Chart created using TradeStation . ©TradeStation Technologies, 2001-2016. All rights reserved.

Among the names, Eight By Eight /zigman2/quotes/203431883/composite EGHT -0.32% provides cloud-based, enterprise-class software solutions to help businesses communicate and collaborate. Most analysts who follow the company project earnings growth of 25% in the March 2017 fiscal year and 40% in the March 2018 year.

Revenue growth has been steady, at 29%, 29%, 32% and 25% in the past four quarters, respectively. It is always a plus to see a company support the Street's superior earnings-growth expectations with rapid top-line growth. This implies organic growth, and not growth being created by expense cuts or extraordinary items such as an acquisition.

Eight By Eight is a more-speculative outfit. This is due to its stock being priced in the teens, at 15, and its liquidity being less than preferred. Here, average daily dollar volume (ADDV) is $13 million vs. the $25-$30 million minimum that is generally sought. Market capitalization is $1.4 billion.

EGHT shows solid accumulation (concentrated buying) over the medium term. The stock appears to be close to completing an O'Neil cup-with-handle base, as the chart below shows. Two weeks ago, price recorded three major accumulation days over a four-session stretch. Then, volatility (daily travel range from high to low) swelled impressively as EGHT positively tested the low of the base.

A very aggressive speculator might consider using the high of the base at 15.53 as a possible entrance for a junior position. If so, the breakout day should show volume of at least 50% more than average turnover of 836,000. This would add to the probability of the breakout resulting in good follow-through higher.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. This initial position could be added to if the stock proves itself. In most cases, a position should not be entered when price is extended, i.e., more than 5% past the top of its base.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,852.86
-180.49 -5.95%
Volume: 8.20M
Jan. 21, 2022 4:00p
P/E Ratio
55.78
Dividend Yield
N/A
Market Cap
$1446.82 billion
Rev. per Employee
$352,824
loading...
/zigman2/quotes/203431883/composite
US : U.S.: NYSE
$ 15.56
-0.05 -0.32%
Volume: 1.71M
Jan. 21, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.77 billion
Rev. per Employee
$342,741
loading...
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