Market Comment

A Cautious Market

April 29, 2012


“The proof in the pudding is always the price/volume action

Last week was spent recovering from the deluge of the prior two. To expect anything more than just a chance for the averages to catch their breath may have been asking too much.

There were a couple of mild positives technically. First, there was Monday’s quasi-outside day/positive test of the prior session’s low. This was followed by Wednesday’s finding of support at a higher level than on Monday, and with volume at its highest for an up day in 15 weeks.


The S&P, for its part, put in a nice wash-and-rinse day on Wednesday. After a recent low, in this case that of three days’ prior, it is a plus to see this type of clearing-the-decks behavior, especially with thicker volume, as was seen here. Most of Thursday and Friday were nothing days as traders reduced new commitments ahead of the long weekend.


About 51% of NYSE issues are trading above their 200-day moving average line. This means about one-half are in long-term downtrends. A bull market tends to begin when this figure is below 20%.

The breadth of the decline began to narrow last week. The below chart shows the number of 52-week lows on the NYSE, a proxy for the average stock, falling as the Industrials hit their low for the move on Wednesday.


Last week’s most interesting technical development was in gold.

gold Gilmo Report Stock Chart

Meanwhile, global growth weakens. Besides softening seen in manufacturing data of various countries, many commodities limp lower.

Since gold is denominated in dollars, it is less expensive for a non-US citizen to buy when the dollar declines. Gold, then, tends to have an inverse relationship with the dollar. Both, however, are higher over the last seven days, as gold has put in a higher swing low.

Could this be the market discounting further Federal Reserve accommodation? Or could this be money looking for a safe haven, and finding it in gold, the true anti-fiat currency?

The answer is not known, and may not be important to a technical speculator who does not concern herself with fundamental developments. Of note is that this shift may portend shifts in other asset classes, shares being one.


Among the names, Petsmart (PETM), which had been noted as forming one of the best bases among any glamour, broke out Wednesday. The gap did not leave price more than 5% above its pivot, and therefore it could have been taken by an aggressive participant who is not insisting that the averages firm up before taking one or more positions.

Petsmart (PETM) Gilmo Report Stock Chart

Thus, PETM joins Pharmacyclics (PCYC) as two of the only breakouts so far in the glamour complex. These will serve as litmus tests of the speculative sentiment in the coming days/weeks.

Pharmacyclics (PCYC) Gilmo Report Stock Chart

Foot Locker (FL) is not one we have followed until now. It does not represent the “something new” that drives the gains of most, but not all, of the market’s biggest-winning stocks. However, it is an early breakout, and for this reason is being followed for sentiment purposes.

Foot Locker (FL) Gilmo Report Stock Chart

Alexion Pharmaceuticals (ALXN) has a rough look to its base, but has the estimates (30%/40% for ’12/’13) and the relative strength (itsRS line moved into new-high ground ahead of price, a plus) to merit attention. A potential pivot point of Mar. 26’s high of 95.01 could be used by an aggressive speculator. The stock can be expected to be a leader should the averages firm up.

Alexion Pharmaceuticals (ALXN) Gilmo Report Stock Chart

Athenahealth (ATHN) cleared the top of its base on Thursday, but was turned back. Volume was 6% above average, and may have been impacted due to the pending holiday weekend. The stock has been a leader previously, which is a plus, and the RS line hit new-high ground ahead of price, another positive. The Thursday high could be used as a potential pivot.

Athenahealth (ATHN) Gilmo Report Stock Chart

Tractor Supply (TSCO) nears completion of a five-week base and can be expected to clear this in coming sessions, especially if the averages show some resilience. The base top is Apr. 19’s high of 101.20, and this could be used as a potential pivot for entry.

Tractor Supply (TSCO) Gilmo Report Stock Chart

Ulta Salon (ULTA) has some more backing and filling to do, but its RS line is flirting with a new high and some accumulation on the right side of its base can be seen. The Apr. 19 high of 96.65 is a potential entry pivot.

Ulta Salon (ULTA) Gilmo Report Stock Chart

Monster Beverage (MNST) has on balance been as good a performer as any of the glamours during the market correction. Unlike others, price has not once touched the 50-day line since January. The RS line hit a new high a month ago. This is one to keep note of, but at present does not offer attractive entry due to a lack of support beneath price and the tenuous general market.

Monster Beverage (MNST) Gilmo Report Stock Chart

Elsewhere, others that show relative strength include GNC Holdings (GNC), Under Armour (UA), Equinix (EQIX), American Vanguard (AVD), Vivus (VVUS), and TripAdvisor (TRIP). These are being watched in the event that the averages show one or more accumulation days, whereupon they could potentially serve as long candidates…Zillow (Z) acts like a contender.

In summation, the short-term trend is down, the intermediate trend is down, and the long-term trend is up. There has not been enough improvement in the averages to indicate a playable rally is at hand. This could change tomorrow or it could change next month. Staying flexible with an open mind to new technical developments is the best course. Certain glamours are staking their claim as contenders for leadership on the next advance. Some of these are listed as long candidates in the event the averages print one or more accumulation days. An aggressive speculator may also use this list if he or she seeks to pre-empt strength in the averages.

Kevin Marder

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