“It’s not what we look at, it’s what we see”
Shares pause to form an abbreviated congestion area atop a Nasdaq advance of eight-straight days. Volume was reduced for most of last week, a good thing.
In terms of long-term health, breadth shows initial signs of a divergence between the average stock and the blue-chip averages. This shows up in the below chart as the NYSE 52-week high list failing to confirm the recent highs made by the S&P.
Another divergence is that of the Nasdaq vs. the S&P 500/Dow Industrials. Most mature bull markets would see it the other way around, i.e. the Naz begins to lag the other two averages by failing to confirm their highs with a high of its own.
The rule with divergence is that any of them count. Divergences generally extend for longer than a month or two before leading to a primary top, and we are therefore only mildly concerned. More deterioration would have to occur before a cautionary message begins to set in.
Further, the NYSE cumulative advance-decline line, the favored breadth indicator here, actually leads the S&P.
The other long-term signpost worth paying attention to is the action of the interest-rate proxies like the financials, banks, and brokers. This is also a mild negative, as none have confirmed the recent high by the S&P with highs of their own.
Within the list, healthcare has been the undisputed leader, stoked by the biotechnology group. Utilities, reacting to the January slide in bond yields, and basic materials are the others that have shown some strength of late. Critically, recent new issues act quite well, reflective of the healthy speculative sentiment that is necessary for a sustainable bull market rife with opportunity.
Among the names, Acadia Healthcare (ACHC) was discussed here last week: “We would be monitoring the stock for a breakout past the 1/22 high of 53.8.” The comment stands.
Aercap Holdings (AER) is in the business of leasing aircraft and aircraft components, a cyclical company. Most estimates on Wall Street show earnings growth of 28%/23% in ‘14/’15. The stock vaulted 33% on Dec. 16 on word it would buy AIG’s aircraft leasing business.
AER’s earnings report was released late last week. The stock gapped down on Thursday, then recovered quickly, and on Friday cleared a nine-week structure on over double normal volume. We like this clear-the-decks price action created by an elephant bar, and believe the title is set for upward revaluation. Price is 4.1% above the top of this pattern, and thus is not considered extended. An entrance around Friday’s close of 41.41 could be used by an intermediate-term speculator with a 6%-7% stop.
Alnylam Pharmaceuticals (ALNY) is a 98 relative strength issue in the 99th ranked group for rs, the biotechs. Losses are expected in ‘14/’15 while the company books revenue. Price moved out of a lower-level, two-week range on Thursday and Friday, effectively confirming the bottom of a six-week cup pattern. Each day price was up 7%, and volume was 48% and 70% above average, respectively. While an attractive entrance does not exist at the moment, the stock appears to be serious about being a leader, and should be monitored.
Auspex Pharmaceuticals (ASPX) was noted on the Twitter feed on Wednesday. This is a bio that came public less than three weeks ago. There are no estimates published yet due to the company falling within the 25-day quiet period, which expires Mar. 1. So one is trading off the chart alone. What is interesting is the double in the first seven days of trade, followed by the shallow pullback of 12%. A pullback of 12% is not normally considered to be shallow. However it is when it is preceded by a double in just seven days.
This could be a possible give-and-go setup, as volume dries up soundly. Given the power shown, a potential entrance for the very aggressive speculator might be a break of the pattern high of 25.13.
Calamp (CAMP) was noted here last week: “…we would be watching CAMP for a breakout entrance above the 1/22 high of 33.59.” The comment stands.
Chipotle Mexican Grill (CMG) was noted here last week: “…merits a potential entrance on a takeout of the 568.90 high of 1/31.” The comment stands.
E-House Holdings (EJ) is a Chinese real estate brokerage company. Being from China, being in real estate, and being a teen-priced stock, this is a higher-risk play. Earnings are expected by Wall Street to be up 44% in ’14 over that of ’13. The stock is seven weeks into a constructive base. It has had three nice, volume-backed gains in the past four days. While its upcoming earnings release hangs over the stock, EJ can be watched by a very aggressive speculator to see if it becomes a breakout candidate above the 15.14 high post-earnings.
Gilead Pharmaceuticals (GILD) garnered a mention in the week ago report (“The 84.40 high of 1/22 represents a potential entrance for an intermediate-term speculator. Earnings are out of the way.”), which stands, and also the 1/13 report (“the 12/09 high of 76.11 would represent a potential entrance for the speculator.”). We particularly like the ‘14/’15 estimates of 84%/51% for this, the largest biotech by market capitalization.
Harman International (HAR) is a leading maker of quality sound equipment for consumers. This is a cyclical story getting its legs due to the expected demand for consumer cyclical issues in a growing global economy. We like the June ‘14/’15 estimates of 38%/27%. The stock is treading water in an ascending triangle pattern following the Jan. 30 burst upward of 17% on volume over five times normal. The tightness of this consolidation area subsequent to such a substantial gain is a plus. HAR could be entered on a break of Friday’s high of 105.97.
Intercept Pharmaceutical (ICPT) is a development stage outfit with a loss expected in ’14 and no real revenue to speak of. The specialist in liver disease management recorded the most explosive move in memory just recently. Six weeks ago, price skyrocketed 281% one day and another 62% the next. Since then, price has formed a lower-level cup-with-handle base. Volume has dried up nicely during the past several weeks. With earnings expected in March, a very aggressive speculator could consider an entrance pivot of 387.76, the Feb. 10 high.
Insy Therapeutics (INSY) was mentioned here last week (“A very aggressive player might use the 59.99 high of 2/03 as a potential entrance for a junior position.”). Price did clear this level, but on unimpressive turnover, caused perhaps by caution ahead of the earnings release. At this juncture, an attractive entrance does not present itself, but this issue is worth monitoring due to its major sequential revenue growth and hefty ’14 estimate of 47%.
Pharmacyclics (PCYC) is in the business of providing cancer solutions via small-molecule drugs. The company is expected to show a decline in earnings in ’14 followed by an 89% jump in ’15. Sequential revenue growth has been major in the last two quarters. Friday, price hurdled the top of a four-month base on volume 165% above average. For an aggressive speculator, the stock can be bought around Friday’s closing level of 151.61. A stop below 140 would amount to slightly less than 8% risk.
SolarCity (SCTY) was discussed here last week: “We would wait for the earnings report, expected out later this month, before considering an entrance, which presently would consist of a breakout above the base high. This is a 98 rs stock in a 99 group.” The earnings release is expected after today’s close.
YY (YY) is expected to notch earnings growth of 49% in ’14 per most analysts on Wall Street. The Chinese social media outfit has been showing sizable quarterly sequential revenue growth as far as the eye can see. YY forms a five-week base ahead of its earnings report, expected in early March. Subsequent to its earnings release, we would be watching the title for a potential breakout entrance above the 72.78 high of 1/17 or a cheater entrance above the 2/19 high of 71.83.
Elsewhere, we added to our initial pullback entrance of Jan. 29 in Market Vectors Junior Gold Miner ETF (GDXJ) with a second pullback entrance on Feb. 20. Both entrances were noted on the Twitter feed. We will be looking for an attractive entrance for another add-on position going forward. In retrospect, we made two mistakes by missing a) the first pullback in gold’s new trend (we bought the second), and b) the Feb. 7 breakout entrance off a three-week shelf. In general, we prefer pullback entrances over breakout entrances in a market such as gold proxies that is characterized by so much overhead currently. This explains the reticence to add on the breakout.
In summation, trend, volume, leadership, and speculative sentiment are positive, while breadth is negative. The important liquid glamours, Facebook (FB), Tesla Motors (TSLA), Netflix (NFLX), and Priceline.com (PCLN), along with Biogen (BIIB) and Gilead Sciences (GILD), are all under solid accumulation. Junior glamours also act very well. Upward revaluation is expected.
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