“Many an opportunity has been lost waiting for one last rally or decline.”
– Robert Prechter
Courtesy of buying in the wake of the recent Federal Reserve decision to commence the taper, shares are overdone short-term. While this is never a reason to refrain from initiating new commitments, as it happens the market may not be expected to do too much this week due to the holiday.
The growth-stock leadership holds up well, with some inevitable exceptions. Since early October, we have been speaking about the peak in speculative sentiment as some participants chose value over growth and high-income issues. This was discussed in a major newspaper this morning.
Within the list, important segments hold their own. Retailers have lagged in December, but this is not uncommon as the buy-the-rumor (of a buoyant holiday season), sell-the-news trade takes hold. Retail names are important to any analysis of the economy, as retail sales comprises about a third of GDP.
In the last report, it was noted that a “modicum of pattern setups among growth titles has lowered the probability of successful intermediate-term speculation.” While this may be true, the tone has improved marginally.
Along these lines, for the intermediate-term speculator in high relative-strength titles, the key development has been a moderate resurgence in the speculative sentiment that began just prior to the Federal Reserve meeting of 12/18.
Among the names, we like what we are seeing from Tesla Motors (TSLA) and noted this on the Twitter feed recently.
Acadia Pharmaceuticals (ACAD) has no fundamentals, as it is a development-stage biotechnology firm. That has not stopped it from a 16-fold move in little more than a year. Price forms a well-deserved base, and volume has been well below average for most of it, a plus. A more-aggressive speculator may choose to use the Dec. 26 high of 26.50 as a cheater entrance. A less-aggressive player may prefer to let price narrow the 15% difference between it and the base top before considering entrance.
Alnylam Pharmaceuticals (ALNY) has no earnings but has revenue which is patchy. After moving up about 120% in Q2, price forms a three-month base, one of the best in the growth sector. For the past week, the stock has placed a handle on the price pattern, a positive development. A potentially attractive entrance would coincide with a breakout from the handle high of 67.97 set 12/23. A 6%-7% protective stop can be used to mitigate risk.
Bitauto Holdings (BITA) is a Chinese provider of car-related info, including pricing and reviews. Earnings growth in ‘13/’14 is expected to be 71%/30%, and these estimates were most recently revised upward. Revenue growth has been strong. BITA is a 99 relative strength issue in a 99 rs group (Internet – Content).
After tripling from August into Thanksgiving week, price forms a five-week cup. Friday’s reversal creates a distinct reference high that may potentially serve as an entrance pivot depending on the price action over the next days or week.
Canadian Solar (CSIQ) is expected to put up a 252% earnings increase in ’14. It may be unrealistic to expect price to do much right away after CSIQ tripled in just three months. At the moment, it forms a six-week base with 20%+ depth. Worth watching for either a standard breakout or a potential cheater entrance on a takeout of the 12/20 high of 31.82, but with tempered expectations of what is possible.
Constant Contact (CTCT) is expected to post earnings growth of 30%/29% in ‘13/’14. The stock is a bit thin, at $12MM in average daily dollar volume. We prefer $25MM-$30MM, but there is no hard and fast rule. The positive about this chart, besides the steady uptrend since April, is 10/25’s 18% jump on volume six times normal. While price did not go out well that day, this can be chalked up to the name being less liquid, with more than its share of volatility. However, price did not give back much during the subsequent eight-week base. The breakout and major accumulation day of 12/20 coincided with quad witching, and we would therefore give this less weight than usual. The two days prior to that were solid up days, and allowed price to clear a three-week range. Net-net, price action has been encouraging since the v-bottom of the pattern.
A takeout of Friday’s high of 30.37 would represent a potential cheater entrance for a very aggressive operator, using a tighter-than-usual stop of just below the low of the signal bar at 29.14. If it does not go right away, we are not interested in lingering.
Envestnet (ENV) shows earnings estimates of 72%/36% for ‘13/’14. Sequential revenue growth for the past two quarters is very good. Price forms a five-week base. There is not quite enough meat on the bones in Thursday’s high to use it as a potential cheater entrance. At this juncture, a standard base breakout above 11/25’s high of 41.11 makes more sense as a potential entrance pivot.
ExOne (XONE) is a laggard behind DDD and SSYS in the 3-D printer industry. Earnings are expected to go from $-0.13 to $0.43 in ‘13/’14 on a per-share basis. Sequential revs solid in the last two quarters.
Four of the last five sessions have been good ones. Three of these came during Christmas week, when volume is normally lax. We would not buy the breakout above the 11/14 high of 64.70 should this occur Monday due to price being stretched short-term (+22% since the last swing low eight days ago vs. +3% for the Naz). Instead, we would monitor this for a pullback entrance or a possible breakout above 64.70 if price forms a handle or moves sideways. Well worth watching, however: The group rs is 98, a moderate plus.
Fiesta Restaurant Group (FRGI) shows estimates of 119%/49% in ‘13/’14. Most of the growth is not expected to be organic, however, as revenue growth is in the single digits. This is of less importance to us, since this strategy is intermediate-term in nature, with winners held from several weeks to several months. In other words, stocks are dated, not married. FRGI last week formed a handle on top of its four-week v-shaped pattern. Instead of trading the breakout of Thursday’s handle high, we would prefer to monitor this for a pullback entrance.
FireEye (FEYE) is a security software specialist that came public in September, proceeding to close up 80% in its first day. No earnings are slated for ‘13/’14. Sequential rev growth has been vibrant the past two quarters.
Price is currently nearing the top of its first base, aided by Thursday’s 8% move on volume 120% above normal. Friday’s easing on lighter volume was a positive. The question is whether a bona fide handle of five days or more will form, or whether price will act a la Twitter (TWTR) and move out with just a one-day “micro-handle” as it did on 12/9.
A very aggressive speculator can buy the break of Thursday’s high of 43.85, using a tight stop of just below the Friday low of 42.30, or about 3.6%. In other words, if price does not show persistence post-entrance, we are not interested in lingering with a position and possibly absorbing a 6%-7% loss. Using a junior position initially, the cost of insurance against a severe loss (assuming no gaps) is a de facto 1.8% of the position.
This is believed to be a reasonable risk for a title that was up as much as nearly 125% during its first day of trading – showing clear demand – and recording such impressive revenue growth.
NPS Pharmaceuticals (NPSP) is forecast by the Street to go from a per-share loss of 21 cents in ’13 to a 44-cent profit in ’14. Sequential revenue growth confirms this move to profitability. After a fivefold move in six months, price has been putting in a normal basing pattern of nearly 40% depth. This is not considered excessive for such an outsized move, let alone one in such a compressed timeframe.
The 12/18 move of 8% on volume 83% above normal was the first sign that the stock had turned the corner. As with many issues, last week saw price tighten considerably along with a commensurate drop in volume due to the holiday. Each year, this typically occurs in many charts for the 1-2 weeks at year-end.
We would watch NPSP for a pullback here or sideways action for at least another day before contemplating Thursday’s high as a potential cheater entrance.
Salix Pharmaceuticals (SLXP) is an ethical drug maker focused on gastrointestinal disorders. Earnings are expected to increase 23% this year and another 38% next year. We always prefer estimate acceleration like this.
The group is ranked in the 96 percentile according to relative strength. Based on the 11/8 move of 18% on 963% more volume than usual; the current six-week base with a depth of less than 10%, considered constructive after a nearly-30% move; and the accelerating estimates; a potential entrance exists on a takeout of the base top of 90.73, the 11/18 high.
Solar City (SCTY) is expected to lose money in ’14. Sequential revenue growth booms over the past three quarters. This is a 99 rs stock in a 99 group. Technically, the turning-the-corner day was 12/19. No edge is available at present, as price drifts higher on holiday volume. We like the slope of the rs line since Thanksgiving and will be watching SCTY to see if it sets up.
Valeant Pharmaceuticals (VRX) was mentioned in the last two reports. From the 11/25 report: “Price forms a five-week cup which can be monitored for a potential entrance above the base top at 115.40, the 10/21 high.” The comment stands. A caveat is that if price breaks out this week, it may be hindered by the quieter holiday volume.
In summation, the recent Fed meeting produced a pop that, while leaving the Naz overdone short term, boosted the speculative sentiment a couple of notches. The opening week of the New Year contains a certain amount of noise, as institutions take off their window-dressed positions, new retirement contributions arrive, and certain tax-related holdings are massaged. We would suggest focusing on names that are trading in their own world, oblivious to the goings-on around them, some of which are discussed above.
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