“It is the change in the major trend that hurts most speculators.“
— Jesse Livermore
The Nasdaq Composite is in a modest short-term uptrend that began on Tuesday of last week when the index printed a higher high to go with its higher low.
The singular most interesting facet of this market is the outperformance by the Nasdaq 100 (QQQ) in nine of the last 10 sessions. This occurs as the small-capitalization sector remains a weight on the Naz Composite. In essence, there is a tug-of-war going on between large- and small-capitalization titles within the Nasdaq.
Along these lines, a few liquid glamours have shown signs of life, notably Netflix (NFLX) and Google (GOOGL), both of which moved into new uptrends on 5/13. These join Gilead Sciences (GILD) as the senior growers that most likely appear to be contenders for leadership on the next leg up in the averages.
Among the names, Anika Therapeutics (ANIK) has upside-down estimates in that ‘14’s +60% is greater than ‘15’s minus 26%. But with a 99 relative strength rank, the company must be doing something right, especially since it is from the beleaguered biotech group. Price is nearly two weeks into a handle to go with a 10-week cup. Should the averages firm up in coming days/weeks, a standard breakout entrance above the 49.37 handle high of 5/06 could be considered by an aggressive speculator.
Bitauto Holdings (BITA) is similar to ANIK in that it hails from a beaten-down group (Internet content) yet shows a 99 relative strength rank. Expected earnings growth from most analysts is 50%/50% for ‘14/’15, rare indeed. Seeing a go-go leader from ’13 like BITA perform in line with the S&P for the past 10 weeks speaks. This is the key to this one, along with the outsized estimates which tell you there is plenty of octane for upward revaluation. Should the averages firm up in coming days/weeks, a cheater entrance above the 40.82 high of 4/02 could be considered by an aggressive speculator.
Illumina (ILMN) is expected to put up earnings growth of 20%/23% in ‘14/’15. This is attractive for institutions due to its growth, the stability of the earnings growth, and its liquidity. Price is showing clear signs of accumulation and earlier this week the short-term trend went from down to up. An aggressive entrance would be on a takeout of the 4/23 high of 158.50, using the round number of 150 as a stop. This is a widely-watched swing high and should garner solid volume on a breakout, not unlike the big volume that NFLX attracted today as it took out the midpoint of a double-bottom base.
Kate Spade & Co. (KATE) is a turnaround play, with five years of losses yielding to profits in ’14 and ’15, the latter an expected 172% increase over that of ’14, according to most on Wall Street that follow the stock. Price forms an nine-week cup, with volume last Wednesday coming in 145% above normal on an 8% price increase. A mild plus is the ability of price hold more or less above the prior swing high of 5/05. Ditto for the dry-up in volume over the past week. An aggressive speculator may consider using the 5/14 high of 38.32 as a cheater entrance. A standard breakout entrance above the 40.75 high of 3/19 is another possibility, though a cheater entrance could materialize between now and then.
Our swing model signaled a buy on Netflix (NFLX) Monday, and the stock followed through by rising Tuesday and today. Today’s 5% move came on volume 53% above normal. The stock is now destined to challenge its old high of 458 set Mar. 6. Any reasonable pullback will be entertained as a possible entrance. This is clearly the horse among liquid glamours in the market, with Google (GOOGL) a runner-up. There is a big difference between the two names, however. GOOGL is expected to tack up 21%/18% earnings growth in ‘14/’15, while NFLX is looking at ‘14/’15 growth of 99%/65%.
Pacira Pharmaceuticals (PCRX) was noted in the MarketWatch column of Apr. 22 as being buyable by a very aggressive speculator above the Apr. 1 high of 74.76. Two weeks ago, the stock broke out past this pivot on volume 81% above normal. There was no follow-through, however, and price drifted to as much as 4.8% below the suggested entrance, not enough to trigger the 6%-7% stop usually cited in these reports. At this juncture, for a starter position, we would probably wait for a standard breakout entrance above the 2/25 high of 83.41 rather than using something else as a possible cheater entrance.
Trinity Industries (TRN) is a name we are biased toward, as we first learned of it in ’86 or ’87, and have since watched it outperform whenever there is a movement into cyclicals. The maker of railcars, barges, and other industrial components and equipment was mentioned positively in our MarketWatch column of Apr. 29. The current price of 82.20 is 8.4% past the MW report’s suggested entrance of 75.95, and is considered extended and not particularly attractive. TRN has stayed above its 9 ema for nearly three weeks, showing real strength, and we would look on any pullback to the 20 ma as a possible attractive entrance. An alternative, more-aggressive entrance would involve a junior position around Wednesday’s closing level of 82.20 and a stop below the 20 ema (4.6% lower).
This is a 98 rs stock in a 98 rs group and is under extreme accumulation. The rs line (not shown) is virtually kink-free and reflects the persistency and deliberate accumulation going on.
United Rentals (URI) was discussed in the MarketWatch column of Apr. 24 as being buyable above the 4/01 high of 96.72. Price broke out above this level last week on mediocre volume, then retreated to a level 4.7% below the 96.72 pivot – not enough to trigger a 6%-7% sell stop – which coincided with the 50-day moving average line. A potential entrance lies in a second attempt at breakout, this time above the 5/13 high of 99.25. As always, we suggest a junior position (half normal) on the initial starter position, which can then be added to should price move in the desired direction. This is a cyclical issue, with a 96 rs in an 88 rs group.
Vipshop Holdings (VIPS) has some mighty earnings estimates for ’14/’15 (142%/71%, per most analysts) and has held up well technically given its being in the Retail Internet group. Last Thursday, price cleared a widely-watched pair of prior swing highs en route to a 10% gain on volume more than triple average. In the Apr. 24 MarketWatch column, we cited the 33% deep base as being something that would discourage us from using the 161.99 high of Apr. 2 as a cheater entrance pivot. Price is now 2%+ past that point. This is definitely worth watching for a pullback or handle entrance. It has the raw octane to fuel another run, the deep liquidity to attract large participants, and one of the most constructive bases in the market, if a bit on the wide-and-loose side.
Weibo (WB) is a recent new issue that may have the greatest potential of any RNI. The Chinese social networking platform came public in April and rose as much as 44% in its first day. The earnings estimates take a big jump from a per-share loss of 15 cents in ’13 to an estimated 3-cent loss in ’14 to a profit of 28 cents in ’15. Sequential revenue growth over the past four quarters has been explosive. Earnings came out today and the stock came off 5% in the afterhours. Technically, price has been coiling into a smaller and smaller range, suggesting a range expansion and sizable move may be forthcoming. The very aggressive speculator may consider the 5/01 high of 20.66 as a potential and aggressive cheater entrance.
Zendesk (ZEN) came public Thursday, and the customer relationship management software specialist came within a whisper of being up as much as 100% intraday Monday. There are no earnings estimates yet due to the quiet period, but sequential revenue growth is impressive over the past seven quarters. To be clear, sequential revenue growth does not mean the growth of last quarter compared to its year-ago quarter. It means the growth of last quarter over the prior quarter.
ZEN has the two items we most like to see in a recent new issue: a) big price appreciation in the first few weeks, and b) impressive sequential revenue growth in recent quarters or big earnings estimates in the coming two fiscal years. ZEN should be added to a watch list for monitoring purposes in coming weeks.
Zoe’s Kitchen (ZOES) is a recent new issue that more than doubled in its first five days before forming its first base. This is being monitored for an eventual completion of its pattern or a possible cheater pivot that may materialize in the interim. This is subject to the release of Q1 earnings.
In summation, both at the surface and subsurface, things improve at the margin. The rate of improvement is gradual, in keeping with the time of year, which historically has not been known for intermediate-term advances that one’s teeth can be sunk into. In a sense, it is a good thing that the market is going through a corrective/consolidation phase at this time of year rather than during the prime time of the autumn and end of year.
A generous cash position is warranted, as the number of pattern setups is few. The names mentioned above are believed to represent the best long ideas, but most need more work before representing attractive entrance. This fact dovetails with the current market tone, which is not conducive to heavy long exposure.
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