The stock market has had a strong run year to date with the S&P 500 up roughly 18%, but the rally has paused recently with the S&P 500 struggling with 1700. The S&P 500 is about 10% above its 200 day moving average which is high, but not excessive. Likewise, the percentage of stocks in the S&P 500 above their 50 day moving average is elevated at 76%, but not extreme. A reading closer to 90% would suggest the market is vulnerable to running out of gas.
The S&P 500's history in August:
The 2013 stock market rally is mature going into August, which has historically been an average month for gains, but also a month of great volatility in return. Going back to 1928, the S&P 500 has rallied 58.8% of the time in August. This puts August in the middle of the pack for up months. The average return has been 74 bps which is the 5th highest of the 12 months. The average return for just up months is 401 bps, while the average return for just down months is -393 bps. August has seen the greatest volatility of the year based on standard deviation. The standard deviation of return is 6.28% and the highest of any month.
Looking for favorable fundemental and technical factors:
Given this backdrop, companies which are seeing their earnings estimates rise and holding a potentially positive technical backdrop may provide fruitful investment ideas. In an extended market, owning a stock with strong fundamentals and favorable technical factors can make investing less worrisome. A combination of companies with a Zacks #1 Rank (strong buy) and a chart story were set as investment criteria. Here are three ideas that caught my attention:
Hawaiian Holdings (HA): Investing in airlines has not been one of my favorite themes, but HA has seen analysts revise up 2013 and 2014 earnings sharply in recent months. Over the last seven days, the 2013 estimate has risen 7 cents to $0.88 and the 2014 estimate increase 10 cents to $1.16. The chart shows the stock breaking out of a 1+ year range to the upside, and an extension of the rally from September 2011 to early 2012 could put the $9.00 area in play. Clear movement back into the range would destroy the breakout pattern and cause a rethinking of the chart story.
Marvel Technology (MRVL): This semiconductor name has seen its earnings estimates stabilize after a period of decline. Besides being a Zacks Rank #1, the stock is trading cheap compared to its historical tangible book value. It is trading about 2.7x tangible book value compared to a median 6.9x. It looks inexpensive based on its longer term valuation range. Technically, the stock formed a double bottom in late 2012 and has established an uptrend. It has rotated over congestion at $12.00 and has been stair stepping higher. The chart sets up the chance for a test of the 2012 high near $17.00 with patches of resistance near $13.00 and $14.50 along the way. A break of the uptrend line may question further price strength.
CME Group (CME): This high profile futures, options, and swaps exchange has seen its 2013 and 2014 earnings per share estimates rise 5 cents to $3.24 and 3 cents to $3.73 respectively in the past 30 days. The CME could benefit from trading activity linked to the potential for the Fed to begin its tapering of QE and uncertainty surrounding a new Fed Chairman. The chart pattern shows a channel being formed on the daily bar. The pattern looks like a pause before prices leg higher. The outlook for a rally would improve on a move over $76.00. A decline below the bottom of the channel would question the validity of the bullish technical set up.
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