Market Comment

Buoyancy

February 20, 2012

People who say it cannot be done should not interrupt those who are doing it.

— Chinese Proverb

 

Shares remain buoyant. There are no signs of distress at the surface, and leading stocks act well with a few exceptions.

There are enough opportunities for the aggressive speculator to keep busy without having to wait until the next intermediate-term correction presents itself. The below chart shows the unidirectional aspect of the move.

</p

Despite the appearance of a move that has been stretched to its limit, recent precedent indicates the advance is not long in the tooth.

</p

Among the names, our Feb. 14 report identified four leaders believed to have the credentials to become one of the outstanding leaders of this bull market. Linkedin (LNKD) was one of the four, and the report noted “potential entry for the aggressive speculator would be above the Friday high of 91.20, preferably on strong volume. The usual stop loss of 5%-7% should be used if proven incorrect.”

As the below chart shows, price broke out Thursday above the 91.20 pivot on volume 146% above average. The high volume indicates institutional appetite is still there for the stock even after the gap-up on the earnings report two Friday’s ago. At this point, price is 9.5% above the bottom of its handle, which represents a logical stop loss point, though farther away than the 5%-7% preferred. For those wanting to enter here, one has the choice of either using the long, 9.5% stop (not recommended) or using the 5%-7% level as a stop on a junior-sized initial position. There should be at least one additional entry possibility as price continues up the right side of its base.

Much like Baidu (BIDU) was a rare bird in the ’09-’10 bull market by virtue of its big earnings growth rate and deep institutional liquidity, so is LNKD (mid-70% growth rate for each of ’12 and ’13 + $186MM average daily dollar volume). Titles like this used to grow on trees, but not anymore. Also, like BIDU, LNKD has that “something new” that has propelled most of history’s biggest-winning stocks.

<strong

Rackspace (RAX), another with what is believed to be the necessary goods for stardom, pulls back toward the 50 round number. It is safe to say that price may not get back to 50 before institutions either begin adding to their positions, or begin to enter initial positions that they missed due to last week’s gap-up breakout. A potential entry, if it makes it that far, would be a junior-sized position at the round number, with a stop loss at 45, just below the 50-day MA and the top of the prior base. Alternatively, if price does not make it to the round number, an entry on a fresh breakout to a new high is possible, but is premature to speak about at this juncture without more technical evidence.

Rackspace (RAX),  Gilmo Report Chart


Netsuite (N) is another believed to have the potential to be an outstanding leader in this cycle. Earnings estimates are 40%/62% for ’12/’13, while price forms what appears to be a handle to go with its cup. A possible entry above the Feb. 3 high at 48.82, preferably on big volume, could be considered by an aggressive speculator.

<strong

In the last report, Mercadolibre (MELI) was noted as having a “potential entry point … [on] a takeout of the high of the handle at 98.75.” This area was breached last Wednesday on volume 103% above average, however the below chart shows price stalling and dipping back below the pivot the following day. A trader using anything more than a 5.5% stop would still be in the trade, otherwise the trade would be stopped out. MELI releases earnings any day now.

Mercadolibre (MELI) Gilmo Report Chart

The fundamentals for online real estate data provider Zillow (Z) are there in spades: estimates of 170%/130% earnings growth in ’12/’13 and five-straight quarters of triple-digit top-line growth.

The stock was noted here in the last report as being worth watching to see how it behaves following its earnings release. Following Thursday’s earnings release, the below chart shows price churning at the top of a three-week move of close to 40%. Once this noise is disseminated, the stock may have a chance to assault the 36.60 pivot point shown in the chart. Definitely worth watching.

Zillow (Z)  Gilmo Report Chart


Golar LNG (GLNG) is a shipper of liquefied natural gas and is expected to log earnings growth of 131% in ’12. The number of mutual funds that own the shares has increased substantially in recent quarters. The stock sets up in a standard cup-shaped base of six weeks’ duration, and large investor interest has been increasing as the base has matured. The earnings report’s release is imminent. A potential pivot point for entry would be the top of the cup at 47.82.

Golar LNG (GLNG)  Gilmo Report Chart


SPDR Gold Trust (GLD), which was accorded a buy signal on Jan. 3 as noted in the Jan. 5 MarketWatch column, offers an additional entry on a takeout of the top of the handle area at 171.23, as the below chart shows.

SPDR Gold Trust (GLD),  Gilmo Report Chart

Elsewhere, Las Vegas Sands (LVS) is a stock that appeared attractive prior to its recent breakout. However, the follow-through post-breakout has been disappointing and this is no longer believed to have the credentials for serious leadership…Under Armour (UA) is still being watched for a clearing of the 87.40 high of Oct. 31… Fusion-Io (FIO), a big disappointment given its purported game-changing product technology, remains mired beneath overhead supply despite some large-scale buying over the past fortnight, and is a ways away from being taken seriously here… Equinix (EQIX), which broke out in early January before the market’s advance had any real sponsorship by large players, has quietly put in perhaps the best showing among any glamour. It is extended and does not represent attractive entry currently.

In summation, a few glamours set up in buyable patterns. Most, however, are extended due to the duration of the general market’s advance. A speculator should not chase the market, and should use care to only enter positions when they offer attractive reward:risk ratios. Much of this boils down to the quality of the base and the potential stop-loss available if incorrect.

Kevin Marder

Gil Morales & Company, LLC (“GMC”), 8033 Sunset Boulevard, Suite 830, Los Angeles, California, 90046. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to GMC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Gil Morales & Company, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2008-2017 Gil Morales & Company, LLC. All rights reserved.