News Analysis date published New: 
Monday, April 19, 2010 - 16:03
New Date created: 
Tuesday, April 20, 2010 - 11:10
New Date last updated: 
Monday, April 19, 2010 - 16:03

When a Good Stock Moves Higher in a Bad Market...

Monday, April 19, 2010 4:03 PM

For the past two weeks, I've been informing my Mastering the Markets subscribers that a market correction is likely. Could that correction have started last Friday? Quite possibly. (Much more on this topic in my latest issue, so I hope you've signed up for that premium service.) However, I am not calling for a deep correction, although that is a distinct possibility. If a correction occurs, I expect it to be of the garden-variety type, perhaps -5% to -7%. A correction of more than -10% would surprise me.

Since I do not believe the correction will be severe, staying long could make some sense. And, if you're going to stay long in this market, the better stocks to own are those that go up in a down market (of course).

As I was preparing this week's letter, I had my proprietary systems focus on the best scoring stocks that were moving higher in price on Friday. My top scoring stock for this test is GameStop Corp (NYSE: GME).

GME, a video game retailer, has a total score of 157 out of a maximum of 200.

The fundamentals score is fairly high for this stock: 57 out of a possible 100. The fundamentals that had the largest impact on this score include:

  • The trailing twelve-month growth rate for total sales over a year ago came in at +3.1%, compared to the S&P 500's +1.9%.
  • The five year growth rate in sales for GME is +37.6%, compared to the industry average of +13.6% and the S&P's average of +6.4%.

My technical score on GME is 100 out of a maximum score of 100. Below are some of my technical observations on GME:

  • GME trades in Zone 1 and is trending higher. This gives the stock a lot of upside room to move before possibly encountering a major resistance level. The $27 level could prove to be a minor resistance level that it needs to break through before moving higher.
  • The average daily volume has been either steady or increasing for several months on mostly increasing share price, which indicates investors are generally more positive than negative about the stock.
  • Both the industry (Retail Technology) and the sector (Services) are in bull mode. This means the average price of every stock in GME's industry and sector is above the trend-line and moving higher. This also means it is likely that more money is flowing in than flowing out. This can put pressure on GME to move higher.
  • Finally, GME was up well over +2% last Friday when the market was down nearly -2%. I like owning stocks that can hold their own or, even better, move higher in a negative market.

Once the correction is over, I am bullish on the overall market and, especially the retailers. UPS (NYSE: UPS) blew the doors off earnings numbers last week, which I suspect bodes very well for the retail market. GME could outperform in this environment and be a stock to consider if you want to get in ahead of a potential correction. I would not fault you, though, if you wanted to wait until the correction is behind us before putting your money to work. In the meantime, GME could be a great hedge against a falling market, if it continues to fight the tape as it did last Friday.

Mike Turner does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.