February 23rd, 2009

The All Too-Human IBD 100: TNDM, MDAS and CPA

I know all of you are looking for a clear statement of the market’s near-term direction but, with my sincere apologies, you’re unfortunately not going to find it here. And that’s why I haven’t been posting recently. I just can’t see anything constructive to write about and those positive things that I do see are in precarious base building patterns (e.g., symmetrical triangles). These stocks include FCX (click symbol for chart) and the other fertilizer stocks.

But look how disappointing these symmetrical triangles have been when seen in the S&P 500 Index and other stocks, like X, AKS (click symbol for chart) and other metals stocks.

You can also see the confusion surrounding the market the difficulty IBD is having in populating its IBD 100 list, it’s list of the “leading stocks”. The stocks IBD selects for the list are supposedly ones that they assess currently have the best fundamentals, the strongest institutional support, the most favorable technicals (momentum, charts, etc.).

I wouldn’t want to be the analyst with the job of assembling the list (although they claim it’s done exclusively through algorithms buried deep inside their computers and never touched by human hands) because they have to come up with the 100 stocks that currently outshine all the rest. They can’t have say “Excuse me, but I’m going to leave 80% in cash.” They have to have 100 stocks come rain or shine. You can tell how much of a stretch it actually is by looking at a chart comparing the IBD 100 Index and the S&P 500 Index (I included a scan of that chart back in September 27, 2008 and it’s gotten considerable worse since .. I would have include update but don’t now have access to a scanner).

But some of the specific stocks included in the list are truly baffling. In the past 20 weeks since last October 1, the list has included 358 different stocks for an average turnover of 3.58. Each of these stocks has remained on the list an average of 5.58 weeks with about half staying on the list for three weeks or less:

  • 101 for only one week
  • 47 for two weeks
  • 31 for three weeks

The only stocks on the list each of the past 20 weeks was AVAV. But what is most striking are some of the stocks recently added. I understand that IBD is well-respected and I’m just a blogger but I just don’t get it from looking at the charts of some of these stocks. There’s nothing compelling (according to my selection criteria) to warrant their being considered a “leading stock”. The most egregious include:

  • TNDM (Neutral Tandem): the stock has been on list for past 3 weeks and is now ranked number 2. The stock was a 2007 IPO. Other than the fact it’s at the top of a downward sloping channel, there’s nothing that makes it interesting from a chart perspective.

  • MDAS (Medassets): Was an IPO late in 2007 and has been in a downward sloping channel since. It has also been in the 100 List for three weeks and ranks 8th. The only thing this stock has going for it is the beginnings of a extended head-and-shoulders bottom pattern (possible neckline shown as dashed line) but it could take another year for the stock to go much above 19.

  • CPA (Copa Holdings): A regional airline that more than tripled after its IPO at the end of 2005 and has since declined close to its IPO price. IBD must know something or expects something “very exciting” to happen since its chart has no compelling action but it was still added to the list this week at 27th.

There are many more examples but the only reason for even writing about these is to show that even IBD has a hard time in this confounding market.

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