By Kevin Marder
For weeks, the concern here has been the lack of volume on this 11-week advance off the Feb. 11 lows in the averages. It becomes a concern when a market rally reaches the eight- or 10-week point without showing at least a few days of professional buying (accumulation) to keep everyone honest.
Over the past half-dozen sessions, this problem came home to roost, as the Nasdaq Composite's volume was elevated while the market came off. This is a sign of institutional selling.
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To be fair, an advance going 11 weeks without at least a 3%-5% reaction certainly deserves one. At the same time, speculators will want to keep an eye on the price/volume behavior of the averages to see how extensive this selling may become.
If there was a positive last week, it was Friday's Nasdaq Composite close at the midpoint of the day's high and low. The S&P 500 closed even higher up in its intraday range. This is interpreted as supportive action. That the Nasdaq reversal occurred right at the 50-day moving average line is trivial in importance, as it does not enter in the big picture.
To wit, the big picture is about trends and accumulation/distribution in the averages, market momentum, and the identity and action of the leading stocks.
In terms of leadership, the broad sectors showing outperformance are adhering to a textbook script on what a late-cycle bull market looks like. Energy /zigman2/quotes/206420077/composite XLE -1.06% , industrial /zigman2/quotes/202026558/composite XLI -1.33% and basic materials /zigman2/quotes/204467551/composite XLB -2.40% lead the way higher.
A number of senior growth stocks, meanwhile, showed distribution in line with the averages last week, including Google /zigman2/quotes/202490156/composite GOOGL -2.18% , Nike /zigman2/quotes/203439053/composite NKE -1.60% , Starbucks /zigman2/quotes/207508890/composite SBUX -3.00% and Netflix /zigman2/quotes/202353025/composite NFLX -2.25% , resulting in Thursday's tweet below:
Too, some recent breakouts ended up in failure as price returned to the basing patterns from which they had broken out. These include Inphi /zigman2/quotes/208445412/composite IPHI +0.68% , Emergent Biosolutions /zigman2/quotes/204817890/composite EBS +1.10% , LKQ /zigman2/quotes/210317139/composite LKQ -6.27% , Global Payments /zigman2/quotes/201234787/composite GPN -3.36% , Granite Construction /zigman2/quotes/200569846/composite GVA -8.97% , Exlservice Holdings /zigman2/quotes/207306159/composite EXLS -7.08% and Maxlinear /zigman2/quotes/200823803/composite MXL -1.65% .
Among the names, Paycom Software /zigman2/quotes/208108773/composite PAYC -8.97% is a developer of human capital management software that came public two years ago at 15. The shares closed Friday at 38.21.
Most analysts who follow the Midwestern company forecast 35% earnings growth for this year and 37% next year. Top-line growth has been quite steady given its extent: The last six quarters have seen revenue expand 42%, 45%, 49%, 47%, 51% and 48%, respectively.
Technically, while the stock is building a five-month base, the shares do not offer attractive entrance. Even so, earnings are expected out this week, and taking a position ahead of this impending report would add unnecessary risk.
The Paycom thesis revolves around the fat growth estimates forecast by Wall Street. This is corroborated by a 70% run up since the Feb. 11 market low. This is a name that deserves a spot on an aggressive speculator's watch list.