“What the mind of man can conceive and believe, it can achieve.”
— Napoleon Hill
Last Wednesday and Thursday’s action in numerous growth issues tilted the speculative sentiment back into the percolating stage. “Selective buying is valid” was written last week, and this stands.
There are a few divergences in place between the averages and the average stock. These are considered minor and not close to raising concern.
A negative is that small-capitalization titles and the Nasdaq Composite have lagged the S&P 500 since Oct. 1. It would not be a surprise for this to continue, as this is what often occurs during the latter half of a bull market.
On Sept. 20 of last year, we made a comment in this MarketWatch report that, if anything, the market would surprise to the upside over the next year. Over the past 12 months, the S&P is up 34% and the Nasdaq 42%. Sometimes crystal balls serve a purpose.
Among the names, Lumber Liquidators (LL) is expected to grow earnings 26% in ’14, after an estimated 64% this year. LL’s group, building products, is ranked a low 17 for relative price strength of all industry groups. Despite this, two other group constituents, Tractor Supply (TSCO) and Lowes (LOW), confirm the strength in LL by standing near their record highs.
LL has been basing over the past eight weeks after a 61% move in three months. Friday, the operator of flooring stores emerged from a congestion area. A more-aggressive operator might overlook Friday’s volume of 6% above average and enter right here, using the 50 ma, about 8% away, as a stop loss point.
As always, in order to mitigate risk, it is a good idea to open an initial position of roughly half, or less, of a normal position. An add-on position consisting of the second half or a smaller fraction can be put on if price moves in the right direction. On the other hand, if the position is stopped out, the loss is half of what a full-boat loser would be.
Amazon.com (AMZN) was noted here last week (“…we would be inclined to wait to see some more “proof” from AMZN (e.g. a major accumulation day) before entering just yet.”). The proof arrived Wednesday and Thursday, the former coming on support at the 20 ema, the second time in a week. Thursday saw volume increase to 47% above average as price inched past the high of the three-week shelf. We are not concerned with Friday’s action (which could be construed as churning) – most of the time, price will not make it past a resistance point on the first attempt.
In light of multiple, major accumulation days stretching back a few months, the impressive 10/25 gap day of + 9% on volume 369% above average, and the ability to find support at the 20 twice recently, an entrance around Friday’s closing level of 369.17 is reasonable. A stop below the 11/13 swing low of 345.68 would be about 6% risk, and 3% if a junior-sized position is used.
Pacira Pharmaceuticals (PCRX) was noted here last week (“We would watch this name with the idea of an entrance coinciding with a break above the 55.99 high.”). Price took out the 55.99 high by all of two cents Friday as volume rose 42% above average. Wednesday was the key day as price breezed past the prior swing high to turn the short-term trend up.
A negative is the lagging behavior of biotechs. While the group outperformed last week, they have underperformed for some time prior to that.
Based on the explosive sequential revenue growth of the past two quarters, two days’ worth of recent 50 ma touches, the high relative strength shown over the past year, the action of last week, and a decent four-week pattern, a takeout of Friday’s high of 56.01 represents a potential entrance for the speculator. Other than the psych level of 50, a bit far away from entrance, there is no clear place for a stop, thus a 5%-7% level is appropriate.
Shutterstock (SSTK) shows the Street eyeing earnings growth of 20% this year and 30% next. We prefer titles with estimate acceleration. Revenue growth has been very steady at high levels for eight quarters. Price is working a 16% deep, seven-week base.
Based on the estimate acceleration, the steady revenue growth at a high level, the recent high demand at the 50 ma, the reasonable depth to the base, the two attempts at clearing resistance at 76.12, and the superb performance since going public 13 months ago at 17, a takeout of the 76.12 level can be considered as an entrance.
Envestnet (ENV) provides investment solutions to investment advisors. Wall Street shows earnings estimates of 72%/36% for ‘13/’14. Quarterly revenue growth has been increasing markedly over the past two years.
Based on the impressive jump in sequential quarterly revenue growth over the last two periods (the most recent one being especially kinetic), the reasonable 13% depth to its current three-week consolidation pattern in light of a 37% move in just two weeks prior, and the issue’s ability to absorb a secondary offering which was capped by 10/11’s 15% gap move on volume an explosive 1,249% above average, a clearing of 10/24’s high of 38.70 represents a potentially attractive entrance.
Sunpower (SPWR) was noted here in last week’s report (“We would like to see this calm down, as well as the attention that has been heaped on this group lately. In the meantime, this is one to watch for a possible breakout entrance after it has put in more time.”).
There are no fundamentals here, as ’14 earnings growth is estimated to decline 14%. Yet the stock is a 99 relative strength in a 99 industry group, the solars. For the aggressive player who is not afraid of trading off a chart alone, sans fundamentals, a breakout entrance above the 35.39 high of 10/21 can be considered. A plus was Thursday’s 5% move on volume 48% above usual. This constituted the first attempt at testing resistance, and was followed by Friday’s inside day as price and volume eased.
QIWI (QIWI), the Russian online payment systems operator, is forecast by the Street to grow earnings by 79%/27% in ‘13/’14. Top- and bottom-line quarterly growth have been solid. This is a thinner issue, with average dollar volume of $15.8MM daily.
We are looking at QIWI as a potential breakout candidate above the 10/18 high of 45.90. Preferably, there is a handle or pullback between now and then to give price a chance to catch its breath before a new-high attempt.
Nexstar Broadcasting Group (NXST) continues its turnaround from a series of losing years prior to ’12. Most analysts see earnings up 10% in ’13 and 272% in ’14. This accounts for the television station operator’s fourfold move so far this year. This is not the “something new” type of name that comprises most of history’s biggest winners. Nonetheless, it has been a big leader along with other companies in its group.
In our week-ago report, it was noted that NXST “…can potentially be taken above the 48.19 high set on 10/15.” This comment stands.
Melco Crown Entertainment (MPEL) is a gaming operator focused on Asia. It is one of only six companies licensed to operate casinos in the Macau market. The Street eyes earnings growth of 56%/30% in ‘13/’14.
After an 80%+ run from July into October, price forms a well-structured four-week, flat shelf with good depth. The stock could be taken above the 37 high of 10/21.
Calamp (CAMP) produces wireless systems for satellite TV. Most analysts look for earnings to grow 18%/33% in the February ‘14/’15 fiscal years. Sequential revenue growth has been impressive over the past three quarters.
Following a 59% move in four weeks, price is four weeks into a v-shaped consolidation. This is a thin issue, trading just $12.1MM in volume per day. The recent sharp fall found support near the 50-day and price recovered quickly. We would be looking at this as a standard breakout entrance above the 26.14 high of 10/18. Earnings are expected in December.
Twitter (TWTR) is seen putting up losses in both ’13 and ’14, according to the consensus of analysts. Following a first-day advance that was as much as 93% intraday, the stock forms its first base. The 11/14 high of 45.67 serves as a potential cheater entrance for the very aggressive speculator. This level would diminish in attractiveness the farther TWTR pulls back. Intriguing.
Qunar (QUNR) is a Chinese discount travel booker. The group is in the upper few percentile for relative strength. Given the higher risk/lower integrity of Chinese governance and accounting standards, fundamental information is less a part of the equation in Chinese-stock speculation.
Technically QUNR is similar to TWTR. On its opening day two weeks ago, QUNR more than doubled at one point before closing off its intraday high. Price is now pulling back as it forms its first base. The 11/15 high of 30.73 serves as a potential cheater entrance for the very aggressive speculator who is not afraid of trading off a chart alone. Earnings are expected out Tuesday post-close.
CaesarStone Sdot-Yam (CSTE) produces quartz surfaces for residential kitchens. As noted in our report of a week ago, “Its redeeming qualities are its growth rate, its status as a big leader since coming public 20 months ago, and its six-week base, the latter a rarity in a market devoid of them. It can be watched to see if it fills out its handle or overall pattern, which may open up a possible entrance.” The comment stands.
This is a thin issue, with just $11.6MM in average daily volume. Definitely higher risk, and you can see that by the volatility in its pattern.
Jazz Pharmaceuticals (JAZZ) has worked out well, up about 10% from last week’s mention at 98.24. The stock is now extended and should not be chased.
Priceline.com (PCLN), another long candidate discussed last week at 1073.20, is also performing as expected. It is borderline extended now, and should not be chased.
Insys Therapeutics (INSY), another long candidate mentioned last week, has been a disappointment. Last week, its earnings report produced a 20% travel range on Tuesday, likely shaking out a holder from the 46.70 level discussed in the report. There is no edge at current levels, but it is worth watching once it settles down and develops a trend. The high potential remains.
Infoblox (BLOX) is worth watching. Good estimate acceleration, sequential revenue growth, and support at the 50 line.
In summation, given that the trend of the averages remains up, selective buying is valid.
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The views contained herein represent those of Marder Investment Advisors Corp. At the time of this writing, of the stocks mentioned in this report, Gil Morales & Company LLC (“GMC”), Marder Investment Advisors Corp., or an affiliate thereof held no positions, though positions are subject to change at any time and without notice.