“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.”
— Mark Twain
Despite the continued start-and-stop developments out of Europe, shares have put in a good fortnight’s worth of work. As is often the case, even though the backdrop may not have changed substantially to us mere mortals, the market in its inimitable wisdom is seeing better days ahead.
Technically, the below chart shows the Nasdaq printing a marginally higher high on Friday to go with its higher low. In itself, this is not a monumental development. However it does confirm a shift in the intermediate trend from
neutral to up. Looking at the chart, we see that, on balance, institutions have been better buyers than sellers. At the same time, the level of interest in the market shown by these large investors is not consistent with what is normally seen in a young bull market.
The S&P, shown below, is outperforming the Nasdaq, which is one indication that the speculative sentiment is less than desired. A positive is the tightening action seen in price over the past two weeks. A good deal of this reduced volatility has been due to the holiday season, and the lowered volume therewith. Yet this is still seen as a positive.
Buyers have been hungrier to add positions on pullbacks, the opposite of late September. For example, the most recent pullback ended at point “B” which was a few percent higher than point “A.”
The view here is that the financials do not have to outperform for a bull to make headway. But at a minimum they must stop going down.
The below chart shows a period of outperformance by the banks that began in late November. Equally as important is the better showing by regional banks, not shown, which have greater exposure to real estate.
Besides the ever-present possibility of the Eurozone falling apart, the biggest risk to a bull market is China, given its recent status as a leading indicator. The Chinese market bottomed in late ’08, as shown below, a few months ahead of the US’ bear market bottom. It then topped in late ’10, several months before the US market peak of May ’11.
From the standpoint of the intermediate-term speculator, who seeks to hold a winning position from several weeks to several months, the twin problems with the market are the lack of institutional demand for stock, noted above and numerous times in past months, and the lack of leadership among the speculative growth stock glamours.
Among the names, Alexion Pharmaceuticals (ALXN), noted recently as having leadership potential during the next market advance, continues to act as well as any of the glamours. If the general market environment were more conducive to a campaign of speculation, this would be one of the foremost candidates.
Chipotle Mexican Grill (CMG), mentioned here numerous times, continues to show the credentials that would make it a leader in the event the general market shows more strength.
A modest positive the last few weeks has been Apple (AAPL), which has moved to within inches of its old high. The RS line, not shown, is lagging the move in price, not the best of signs from the standpoint of a stock wanting to be a leader.
Golar Lng (GLNG), is another that is not primed to break out, having already done so, but is likely to be among the leaders should this market launch.
Lululemon Athletica (LULU), a big leader from the start of the bull in ’09, has recently perked up, as shown below. It is always a positive when large investors step up to support a stock as price dips to a prior level of support, in this case the late-June low, as signified by the gray horizontal line.
The view here is that the long-only speculator focused on the intermediate term should remain in a cash position. This has nothing to do with the possibility of the market going down. Rather, it speaks of a lack of opportunity. The names above are noted, not as current buy candidates, but as potential leadership candidates should the general market begin to show material strengthening, both in price and volume.
In summation, the intermediate-term direction of the averages is up. For the long-only, intermediate-term speculator, the lack of tangible institutional interest in this market, coupled with a thin list of speculative growth stock leaders, augurs for a cash position.