“A good plan violently executed right now is far better than a perfectly executed plan tomorrow.”
— Gen. George Patton
Shares remain in good shape despite a five-day decline that culminated in Friday’s gain. There were two distribution days last week, as shown below, but neither was unusual. Tuesday’s was a drop of 1% on volume 3% below average. And Thursday’s was a wash-and-rinse day, with price off 0.8% on volume 2% below normal.
Of import was Thursday’s ability to find support above the previous low for this six-week advance. This maintains the medium-term trend as being up.
The upshot is that a market that was due to pull back did so. And it did so in an orderly manner. Institutions remain willing participants and are not interested in unloading stock on rallies.
Shares are in the process of digesting the recent weak economic data, Europe, the election campaign, the fiscal cliff, and China, among others.
Certain secondary indicators, such as the action of the financials, regional banks, and builders, support a healthy market.
Absent are the emerging markets and technology. This says that market participants are keeping some “risk powder” off the table. The outperformance by small-capitalization titles may owe more to an aversion to overseas exposure offered by larger issues than an embracing of risk.
Among the names, Facebook (FB) was noted last week (“Aggressive speculators could consider entering FB at current levels, using the low of the handle as a stop loss. A junior sized position is suggested for this, which could be added to as price moves in the desired direction.”).
Price is close to the stop-out level, as shown below. This comes as volume dries up considerably.
Apple (AAPL) was noted in last week’s report (“Thursday’s high of 614.34 could be used as an initial entry for a junior position with the idea of adding to it as price moves up. This level makes sense, as the nearest support point, the June 19 high of 590, is 4% below this area, and not excessive. Using a half-sized starter position would result in de facto risk of 2%, had the position been normal in size. The risk here is considered to be minimal based upon the potential reward.”).
Price cleared the suggested pivot level, shown as the horizontal line in the below chart, before reversing. The risk here is minimal in light of the reduced position size suggested. Earnings are due later this month, and the tentativeness of the price action is likely due to this uncertainty.
Spirit Airlines (SAVE) was noted last week as not offering clear entry. The situation remains the same. As the chart shows, price has shown good relative strength as it moves up the right side of its base. Earnings estimates were most recently raised. Earnings are expected out next week, according to the company.
We would continue to monitor the stock for a suitable entry that offers some level of risk mitigation. This might mean a handle formation or other area that might serve as potential support for an entry.
Linkedin (LNKD) was noted in last week’s report (“For those not in the stock, we would prefer to see price pull back to form more of a handle prior to entering.”) The price behavior is normal: After doubling, price is working off some of the excesses of that run-up.
This is another stock that appears to be biding its time ahead of its earnings release, which is Aug. 2, according to the company. At present levels, LNKD does not offer attractive entry for those seeking to establish a starter position. Worth watching.
In last week’s report, Carters (CRI) was noted as “forming a 10-week base, the entry pivot of which would be the July 5 high of 56.01.” This area has not been breached, and is circled in the below chart. Earnings are expected this month. Worth watching to see if it can break out.
Equinix (EQIX) was one of the big winners in the Q1 advance. Earnings are due out later this month, and this likely accounts for the fairly quiet trading and sideways price action. We prefer stocks that have already proven their mettle, and we are monitoring EQIX to see if and when it may clear the four-week shelf it is currently in.
The Fresh Market (TFM) has a rougher look to it than some of the other leaders. However, the most recent cup base appears sound, the earnings estimates of 27%/24% for the January ’13/’14 fiscal years are substantial, and liquidity is good. We are monitoring this one to see how it builds the rest of its base.
Ulta Salon (ULTA) builds a three-month pattern with a potential pivot of 98.42, which corresponds to the June 20 high.
Among recent new issues, we are watching Annie’s (BNNY), forming a three-month base after doubling just after going public. Last week’s comment that “The July 5 high of 44.68 could be used as a potential entry point by a speculator” stands. The stock is thinly traded, with daily dollar volume at $7MM, roughly, on average.
In summation, the averages are in an intermediate-term uptrend. Speculative growth stock leadership, though dented, holds together generally. Critically, about 75% of the glamours give an ample-to-good account of themselves. This, along with the averages’ trend, is not enough to derail a campaign of medium-term speculation. The speculator is urged to stay open-minded and flexible to new technical developments as they emerge.