Did investors throw the baby out with the bathwater?

When the market rallied from the March lows, there were a lot of bears who said that it was a "junk rally". They pointed out, rightly, that everything was going up, good stocks and bad stocks, companies with decent earnings prospects and companies without a prayer.

Since stocks peaked a month ago, markets have been falling steadily. Now we have the flip side of the coin: good companies are seeing their stock prices fall right along with weak companies.

Just to show how exaggerated the situation has become, I ran one of our custom screens. This one identifies those stocks that have shown both year-over-year and sequential gains in both revenues and EPS. This screen yields 193 stocks. The screen further checks to see if the stock is currently on our Trend Leader list which identifies those stocks that are showing strong up-trends according to Aroon, DMI and MACD analysis. This weekend the combined screen yielded only two little know stocks:

EMERGENCY MEDICAL SERVICES CORPORATION (EMS)
ENDURANCE SPECIALTY HOLDINGS LTD. (ENH)

I'm not saying there's anything wrong with these two companies. What I am pointing out is that investors have thrown the baby out with the bathwater. Whereas a month ago we would routinely see over a thousand stocks on the Trend Leaders list; the most recent list from this weekend has only 52.

It is not unusual for this kind of exaggerated action to be the precursor of a reversal. Sure enough, as Monday's trading played out, stocks ended up putting in a strong rally. As I write this, stocks are rallying in Japan. As long as earnings season doesn't disappoint, we could easily see stocks resume their upward trajectory.

PS: the two stocks mentioned above really are pretty decent with respect to fundamentals. Solidly profitable, P/Es not excessive, little debt, good cash flow. ENH has a 3.3% dividend and a PEG ratio of only 0.48. It almost looks like a value stock but with a rip-roaring chart. Both of these stocks are worth a look.

Disclosure: no positions

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Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Trade Radar gets another update

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Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

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