“Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind.”
Monday’s session allowed the Nasdaq to confirm last Thursday as a swing low. This turns the trend from down (lower highs, lower lows) to neutral (higher low, lower high). A takeout of the June 10 high would create the first higher high, and turn the trend from neutral to up.
Thus, from a pure directional standpoint, we would become more interested in this market if price were to take out the June 10 high. It would also leave some, but not much, room before new-high ground is breached.
The above says nothing about our interest in individual titles.
This is an orderly pullback and, to now, has not shown any urgency to the selling. The Nasdaq and small-capitalization names have outperformed, as have the brokers and retailers. For these reasons, the action of the leading stocks, and the lack of serious divergences with the interest-sensitives and the average issue, this soft patch is not likely to lead to a bear market.
It was mentioned in the last report of June 3 “…shares are in good shape to be entering this reaction/correction. The right sectors are leading: These are high-expectation cyclical issues in retail, financial, industrial, and technology. For the speculator, legitimate five-week-plus basing patterns are few and far between. The aggressive operator should be open to the possibility of the true leaders pausing for only two to four weeks before moving out anew.”
This latter sentence is something that will have to be dealt with by each player in his/her own way. Some will wait until leaders form bases of at least five or six weeks’ duration before entering positions. Others, and this participant is one of them, will enter using less stringent criteria.
Along these lines, there is no wrong way to trade. There are only results.
As noted on the gilmoreport.com Facebook page Wednesday, the down move had become obvious to the crowd and was overdone after last Wednesday’s range-expansion down.
Volatility has picked up appreciably since the quiescent advance of late-April and into the May 22 top. This is not viewed negatively, as a) this anomalous behavior would inevitably end anyway, and b) it creates opportunity in the form of pullbacks in leading titles.
It is to be remembered that there is typically a period of dislocation and volatility when the Federal Reserve makes noises about moving from accommodation to tightening. Rarely does this end in a new bear market.
Most often, shares will top only after at least a few rate increases by the central bank. This tendency, along with the absence of worrisome divergences between the averages and either interest-sensitive issues or the average stock, augurs for further highs in the averages.
Too, this cycle may play out slightly differently, in that federal funds dropped to a historic low and may require more than a few increases before the bull is gored. A possibility, not a prediction.
Gold is believed to be nearing an inflection point for two reasons. First, the two-day ATR for SPDR Gold Trust (GLD) is the lowest in the last 96 sessions. And volatility within its price pattern, a descending wedge/triangle, is also shrinking, heightening the potential for a breakout up or down. Sellers have been lowering their offers with more urgency than buyers are raising their bids. This, in combination with there being more distribution than accumulation recently, suggests a resolution to the down side.
Otherwise, in a pullback within an ongoing uptrend, a pullback in which no one knows the end result – new highs or a bear market – some of the prior leaders will themselves move out to new highs.
This has happened currently with Spirit Airlines (SAVE), Cornerstone Ondemand (CSOD), Tile Shop Holdings (TTS), Celldex Therapeutics (CLDX), Financial Engines (FNGN), Acadia Pharmaceuticals (ACAD), the choppy ExOne Company (XONE), Sodastream International (SODA), Conns (CONN), Taminco (TAM), and YY Inc. (YY), to name 11.
Among the names, Tesla Motors (TSLA) is being watched to see if Monday’s gap open, reversal, and poor close is the start of a short-term pullback. If so, Monday’s high may serve as a future entrance pivot. The way TSLA appears presently, there is a modicum of downside testing, certainly not enough for our taste, though we hold the title.
As we have spoken about in the past, a stock that makes its correction low toward the beginning of the correction (to the base’s left side) can often become too obvious, such that by the time it breaks out, the buying pressure is less than preferred. This can sap follow-through.
Rather than an immediate be-line for its high, a healthier path for TSLA may first be a test of the 6/11 swing low at 94.05
Sarepta Therapeutics (SRPT) over the past 12 months has moved up from 3 to as much as 42. This despite no earnings and worsening sequential revenue growth over the past few quarters. How could this be? The market is focused on the future. The past is passed and past.
SRPT is forming a 10-week, cup-with-handle pattern, as shown on the weekly chart below. Most of this base has occurred on light volume, a positive. The high of the handle at 40.56 represents a potential entrance pivot. SRPT is higher risk due to this being a biotechnology outfit.
With major league liquidity ($419MM average volume) and estimates (64%/44% for ‘13/’14), and with it beginning to show signs of life after digesting a 114% jump in six months, LinkedIn (LNKD) is one to watch for a suitable entrance. The 5/15 high of 192.56 is too far away to discuss here, as a more attractive opening may materialize in the interim.
The institutional quality, courtesy of its deep liquidity, and its prodigious top- and bottom-line growth once again make this a most interesting glamour.
Nexstar Broadcasting Group (NXST) was noted in the June 3 report (“For a very aggressive operator who is comfortable with entrances off of abbreviated ledges, NXST could be explored above its historic high of May 13 at 29.99. A half-sized initial position with a 7% stop loss could be followed up as price moves in the desired direction.”).
The stock broke out last Thursday on volume 120% above normal, is extended, and should not be chased. This remains on our radar list for a possible pullback entry.
Acadia Healthcare (ACHC) was noted in the June 3 report (“For very aggressive speculators only, ACHC could be taken above its May 15 high, or 34.98, using a 6%-7% sell stop.”).
The stock did break out on 6/10, but volume was a lax 23% below average. This is not a total surprise, as ACHC has been perhaps the steadiest-performing glamour within the complex. Its move became obvious.
A potential second attempt above the 6/10 high of 35.36 may fare better.
In the June 3 report, Three D Systems (DDD) was mentioned as “…needs to spend some time calming its volatility down so it can make another run higher.”
Since then, DDD has quieted down some, with volume coming in below average on every day. 3-D printers have the potential to become every bit as influential as the telephone and television, but with much more controversy and possibility for mischief.
This says nothing about the appreciation potential of DDD. The company’s expected earnings growth is 27%/24%, per most analysts. This seems low for an industry that is poised to change the world. At the same time, we recall Cisco Systems’ (CSCO) expected growth also being nothing to write home about initially.
DDD’s five-week pattern might bear some resemblance to a handle, but it is viewed here as a distinct base of its own that is separate from the prior cup, with an 18% depth. Handles with an 18% depth generally do not get very far.
While volume has dimmed, the pattern remains somewhat wide and loose. On the plus side, the stock has held up well during this decline in the general market. Volume can be used as a tie breaker should price clear the 5/31 high of 50.98.
Acadia Pharmaceuticals (ACAD) was noted here June 3 (“The stock is working on a nine-day shelf which, for a very aggressive operator, might be taken above the May 20 high of 14.75.”).
The stock broke out on 6/6 as volume swelled to 86% above average. The stock is extended and should not be chased.
Pharmacyclics (PCYC) is one of the stars of the bull market, moving up 153-fold since March ’09. More recently, it has been forming a three-month base as it digests its 113% move of November-March. The 6/3 high of 93.67 serves as a potential entrance pivot. Below is a weekly chart.
Melco Crown Entertainment (MPEL) is a casino operator with properties in Asia. Earnings are expected to be up 29%/30% in ‘13/’14. The stock is moving to the top of its six-week, 11% deep, base after finding support several times at its 50-day line.
The weakness here is the number of distribution days in the base. However, accumulation days have totaled three in just the past seven sessions. The stock can be taken above the base top of 25.15, the 5/6 high.
Tableau Software (DATA) is interesting, mainly because it came close to a double in its first two days of being a public company four weeks ago. IPO’s are not supposed to do this. When they do, they are worth paying attention to.
The company has had a pretty uneventful earnings record, and losses are forecasted for ‘13/’14. So the attraction here is purely the momentum. A positive is volume, which dries up in all the right places.
A potential cheater entrance for the very aggressive speculator is the 6/13 high at 58.59, about $1 below DATA’s record high of 59.60.
Lumber Liquidators Holdings (LL) boasts earnings growth expectations of 44%/19% in ‘13/’14. These are not what they were a year ago, but still contain enough octane at these levels to likely last at least into ’14 before the market begins to discount the slower ’14 figure.
Other housing-relateds such as Ocwen Financial (OCN) and Whirlpool (WHR) trade near their highs. LL has solid accumulation as it comes up the right side of a five-week pattern. After an 8% move in two days, price eased for a couple of days amid a notable dry-up in volume. Price then moved up another 7% over the past three sessions.
In the absence of further technical information such as a pullback, the 5/14 high of 90.92 serves as a potential entrance. This is the high of the base. Should price pull back, a cheater entrance might materialize.
Sinclair Broadcast Group (SBGI) is one of the top two names in the top-ranked group for relative strength. Earnings are expected to go from a profit of $1.20 a share in ’13 to a $2.50-a-share figure in ’14. Like a number of other issues, SBGI is working on a five-week base.
Unlike a couple of others discussed above, the low of Sinclair’s correction is to the right side of its base, not the left side. The view here is that this improves the chance of a successful breakout and follow-through, all else equal.
Thursday the television broadcaster was up 13% and tacked on another 4% Monday. Both days saw volume expand nicely over the prior session. The high of the current base at 29.50 can be used as a potential entrance pivot by a medium-term speculator.
In summation, leading stocks; strength in key segments such as the brokers, retailers, and small-capitalizations; and a lack of serious technical divergences suggest further upward revaluation, though the exact timing is unknown. The speculator is able to capitalize on certain growth titles as they retrace prior gains.
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