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In
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What's Not Wrong
With the Market?
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Upcoming IPOs
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What's
Not Wrong With the Market? |
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Since
mid-March of this year - after stocks began to rally - the debate
has raged over whether or not the rebound is justified or not. The bearish
prognosticators continue to point out new and more dire reasons
stocks are in a world of trouble, while the bulls simply continue to
enjoy their gains.
Though we're
not going to get into the argument (we're more concerned with stocks are
doing
rather than what they 'should be' doing), we do want to take
a quick look at an argument the bearish table-pounders may be trying to
use.... but shouldn't be.
If you hear
anybody telling you this rally has been hollow, without any real interest,
and simply a case where there were no sellers to offset the buyers, don't
believe it.
The fact is,
since
March, the market's gains have had very healthy support on the depth (volume)
as well as the breadth (advancers vs. decliners) fronts. We've charted
some of the key data to easily illustrate that, yes, this rally
has made a solid foundation.
In the interest
of time and space, we don't want to dive all the way into the details of
this analysis. We'll just refer you back to our January
24th comments that explain the idea better. For today, let's just say
we want to compare bearish volume trends against bullish volume trends,
and compare bearish volume depth to bullish volume depth. Of course, to
compare trends, the easiest way to do so is to compares moving averages
of the data (since the raw data itself can be too erratic to interpret).
To that end,
we've got two charts to examine - one that compares the NYSE's bullish
volume to bearish volume since March, and one that compares the NYSE's
number of advancers to its decliners since March.
 First
up... depth, or volume. The nearby weekly chart doesn't show the actual
volume data. Rather, the green moving average shows the trend of trade
volume for the NYSE's gainers. The red moving average reflects the trend
of the trade volume for the NYSE's decliners.
Though the buying
volume faded in May and June - right in front of a modest dip -
that same buying volume trend picked up again in support of the rebound
in July and beyond. Selling volume, on the other hand, was never
that strong to begin with in May and June, but has really fallen
off the radar over the last two months.
It's an interesting
data nugget really, as the bearish arguments have actually expanded and
been more emphasized more during this bullish wave than they were
in the first one after March. Yet, depth hasn't been this decidedly
bullish (with the exception of the post-September-crash volatility) since
the bear market began. Moreover, it looks like the pace of bullish
depth is actually gaining momentum.
Here's the daily
version of the depth chart, which clearly has more short-term implications
than we're interested in right now. It's still worth watching though for
short-term purposes though.
 The
other
chart compares key moving averages of the NYSE's advancers (green)
and decliners (red). Again it's a weekly chart we're primarily focused
on, though
the daily chart has meaning as well.
In short, the
breadth of the gains since March has been more than 'barely marginal'.
If the bull trend was as flimsy as some would have you believe, the number
of gaining stocks is barely outpacing the number of losing stocks. The
truth is, we're seeing breadth trends comparable to those we saw between
2003 and 2007.
Bottom line?
Don't let anyone tell you the rally's not for real, or that the buying's
not as strong as it looks. It's exactly as strong as it looks.
On the flipside,
keep in mind this isn't conclusive, undisputable proof that stocks will
continue to rise indefinitely. A new bear market may start tomorrow.
It won't be because of poor breadth and depth though.
And perhaps
more pertinent right now, we can see from the daily charts that breadth
and depth - depth in particular - haven't been all that solid since
mid-August. The market's still going strong, but in this short-term
case the strength truly is a little hollow.
Though it's
not the only reason, that recent breadth and depth trend is another
reason we're looking for weakness over the next few weeks.
Keep an eye
on the blog and newsletter, as we'll be updating this data on a fairly
regular basis.
After detailing
the initial public offerings from Emdeon
(EM) and Cumberland Pharmaceuticals (CPIX) a few weeks ago, the IPO
market hit a dry spell and we had nothing to talk about. The capital market
made up for lost time though, as there are several slated to launch
over the next two weeks. Here's all of them.
| Company
Name (Proposed Ticker) |
Expected
IPO Price
|
Shares
|
Likely
Launch Date
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| CreXus
Investment Corp. (CXS) |
$15
|
33.3 mil
|
Week of
09/14
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| Apollo
Commercial Real Estate Finance (ARI) |
$20
|
20.0 mil
|
Week of
09/21
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| Colony
Financial (CLNY) |
$20
|
25.0 mil
|
Week of
09/21
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| Vitacost.com
(VITC) |
$11 - $13
|
11.0 mil
|
Week of
09/21
|
| A123
Systems (AONE) |
$8 - $10
|
25.7 mil
|
Week of
09/21
|
| Artio
Global Investors (ART) |
$24 - $26
|
23.4 mil
|
Week of
09/21
|
We do want to
make one thing clear... we're not necessarily advocating that any of
our readers try and step into any or all of these companies, particularly
at their launch. We only bring them up to let you know about them so
you can weigh the pros and cons, and make a decision - before the rest
of the market gets comfortable with them. (That, and the fact that they're
still
micro cap stocks of interest.)
It should be
noted that shares of Cumberland as well as shares of Emdeon shares -
despite both companies being compelling - are both now well under their
IPO price. That's fairly common with new stocks.... once the euphoria wears
off, so does the buying.
Still, there
may be a few gems in this year's growing collection of initial public
offerings, which means they're at least worth a look at some point. Sometimes
the post-IPO dip is just a chance to get in at a price better than the
stock's initial investors. We'll do some legwork on as many of these
companies as we can, though note we may not get to look at CreXus Investment
Corp. before its launch next week.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
