“Many of life’s failures are people who did not realize how close they were to success when they gave up.”
–Thomas A. Edison
From a standpoint of market health, we believe the most important names to watch are TSLA, FB, BIDU, TWTR, LNKD. These names are widely held by institutions, and not just any institutions, but institutions that are willing to go out on the risk curve. Contrary to the beliefs of some, these titles may not necessarily be the first to come undone when there is some unsettling in the market. But they offer a superb look into the speculative sentiment and institutional conviction.
This is a shorter report, as the number of pattern setups has diminished by nearly half over the past week.
Among the names, we took Baidu (BIDU) on Wednesday. While the stock, like many others, shows little accumulation in its base, we like the volume dry-up during its five-week flat base which followed a 30% move in two weeks. Too, the base depth is considered tight and sound. The 4.8% move on Tuesday amid volume of 65% more than usual was a pocket pivot, and a hint that perhaps the Chinese search services provider is ready for a move. Price is in a small pullback and an aggressive speculator could consider a potential entrance around Monday’s close. A stop could be placed below the 20 ma (2.9% risk) or below the 8/28 swing low of 211.26 (6.3% risk) if one felt confident of the trend but wanted to give price more room to move. An alternate entrance would be on a breakout to a new high above Wednesday’s high of 231.40.
The Street looks for BIDU to grow net by 39% in ’15, which we consider significant octane to fuel a move.
We took Facebook (FB) two Fridays ago coming off the little two-day pullback to the 20. This was in line with our comment in last week’s report that “A more aggressive entrance with tightly defined risk would be on a break of Friday’s high of 74.82, using the 8/22 swing low of 73.57 as a potential stop-loss point. Here, the risk would be about 1.8%.”
Except for some light selling into the Wednesday breakout, price acts fine and FB was a solid outperformer on Friday. The plus to this actor is the overall tightness to the pattern. This improves the potential reward-to-risk ratio. For example, taking the stock around Monday’s close of 77.89 and using the 8/28 swing low as a stop results in risk of just 5.3% for a normal-sized position, and 2.7% if a junior-sized (half) position was used to start with. Can be taken around Monday’s close of 77.89.
Illumina (ILMN) was discussed here last week: “…is a very steady, top- and bottom-line grower. The producer of research systems for genetic and biological applications had a nice run in 2013. For the past six months it has been consolidating that run. A breakout entrance pivot of 185.00 is available to the speculator.” The comment stands.
Jazz Pharmaceuticals (JAZZ) was noted in last week’s report: “JAZZ is potentially buyable above the 166.29 high (7/07) of its eight-week base.” Friday price broke out of this base, up 7% on volume 247% above normal. The stock is not considered extended and can be entered around Monday’s closing level of 170.85.
Linkedin (LNKD) was noted last week “…shows a nice accelerating earnings estimate of 47% in ’15 from ‘14’s estimated 16%. Sequential revenue growth is impressive. We do not see enough meat on the bones at this juncture to warrant an entrance in LNKD. Worth watching.” The comment stands.
Palo Alto Networks (PANW), with earnings estimates of a beefy 60%/65% for ‘14/’15, and the number of mutual fund sponsors reaching the sweet spot of nearly 450 while growing rapidly over the past two quarters, has the potential to be a big leader. Thus far, it has nearly doubled since its IPO just over two years ago. Price has pulled back to the top of the previous congestion area and would normally offer a pullback entrance. However, earnings are expected out 9/9 post-close, and we would wait until after the announcement to make an assessment.
Tallgrass Energy Partners (TEP) is not something we would ordinarily be attracted to. The stock is thinner at $14.4MM in average daily dollar volume, and is in a group that is normally known for its income component, not appreciation. In this case, however, a) earnings estimates are for growth of 310%/41% in ‘14/’15, b) the group, oil & gas – transport/pipeline, has a relative strength rank in the 98 percentile after improving in recent months, c) the stock’s rs rank is 97 after nearly doubling in the 14 months following its May ’13 IPO, and d) TEP forms a seven-week cup-with-handle base. This base was cleared Monday, though volume was 48% below average. While the stock remains within buyable range of the base top of 43.50, the disappointing volume would have us monitor TEP for a pullback or other type of entrance.
YY (YY) has big earnings estimates of 67%/42% for ‘14/’15. As noted here in last week’s report: “Price forms a six-month cup-with-handle base. A breakout entrance would be available above the handle high of 90.88.” Last Thursday, the stock broke out of its base on volume 137% above normal. This was followed by Monday’s 4.9% gain on volume 61% more than average. Price is currently about 5.5% beyond the entrance pivot, and borderline extended. At this point, we would prefer to wait for a pullback, and we intend to do this for an add-on entrance.
In summation, shares move up in accordance with an accommodative monetary policy underpinning a goldilocks economy. As the late and esteemed Martin Zweig used to say, “Don’t fight the Fed and don’t fight market momentum.”
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