“The best indicator I know is trend. The other good ones are trend and trend.”
— Ed Seykota
Shares give a good account of themselves. We are not concerned about the lax volume accompanying this three-week advance due to it occurring in August, the month that is most popular for vacations.
We would expect volume to reach a level more normal with past Septembers during this coming week, what with the ISM report out Tuesday and the employment report out Friday.
Beneath the surface, the speculative sentiment warms. Recent new issues, the biotech, Internet – Content, and frac sand segments all act well.
Having said this, it is unrealistic to expect underlying technical conditions to match what was seen last year. This is because a mature bull market is now one year older. There remains a less-friendly attitude toward risk than last year. This is manifested by rotation into larger names, e.g. the Nasdaq 100 issues. One casualty: the small-capitalization sector. It neither outperforms nor lags, quite different than what occurred last year and early this year.
Among the names, Diamondback Energy (FANG) has been a big leader ever since it went public at 18 less than two years ago. An oil & gas explorer focused on the Permian Basin in Texas, FANG peaked at 93.33 in June and has been basing since then. Most analysts look for earnings growth of 114%/40% in ‘14/’15.
Technically, FANG has clocked five accumulation days in the last 10. Just two of the five have been major. The subpar volume over the past three weeks mirrors that of the averages. For those players who prefer to enter coming up the right side of a base, the first opportunity to enter Diamondback was Friday’s emergence from an abbreviated pullback. This just so happened to be a pocket pivot.
At this juncture, a speculator can do one of two things. First would be to enter around Friday’s close of 86.35, using a stop-loss of just below the round number of 80, for about 7.5% risk. This is also just below a minor congestion area in the 78-82 zone. This zone has some significance because subsequent to its 8/26 clearing of this range it returned to test the top of this area on 8/27 and 8/28. Support/resistance areas are considered more significant if they are tested both from above and from below.
The second option would be to simply allow price to complete more of its base before considering an entrance. This might involve waiting for another pullback or it might mean targeting a breakout entrance.
FANG is favored over Bonanza Creek Energy (BCEI) because its price persistency and relative strength are greater, especially the former.
Facebook (FB) is a 94 relative strength stock in a 95 rs group. While it has done next to nothing technically for the last five weeks, this is a plus as it has shown that profit-taking has been de minimus following the +5.2% move of 7/24 on volume 173% above normal. The 8/26 high of 75.99 can be used as a cheater breakout entrance ahead of the base top of 76.74.
A plus is the stock’s ability to find support at the 20 ema late last week. This line has contained price for the past seven weeks. A more aggressive entrance with tightly defined risk would be on a break of Friday’s high of 74.82, using the 8/22 swing low of 73.57 as a potential stop-loss point. Here, the risk would be about 1.8%.
Gopro (GPRO) is a recent new issue that came public at 24 in late June. Two months later, the stock has more than doubled. The maker of wearable cameras is a 99 relative strength stock and is under extreme accumulation. The Street looks for 24% earnings growth in ’15.
After breaking out of its first base on Friday, we would now be watching it for a pullback entrance.
Hi-Crush Partners (HCLP) is one of the big three frac sand plays. The Street looks for 34% earnings growth in ’15. Also, the company shows high sequential quarterly revenue growth. Since coming public at 17 two years ago, price hit a new intraday high Friday of 69.50. This represented a breakout of a six-week base on volume 123% above average. Another substantial plus was Thursday’s volume of 196% above normal on a +3.2% price move.
In light of the excellent volume and decisive completion of the right side of its base, the stock can be taken around Friday’s closing level of 69.15. A suitable stop-loss could be below the 8/07 swing high of 66.39.
Illumina (ILMN) is a very steady, top- and bottom-line grower. The producer of research systems for genetic and biological applications had a nice run in 2013. For the past six months it has been consolidating that run. A breakout entrance pivot of 185.00 is available to the speculator, as is a cheater entrance corresponding to the high of its current abbreviated handle (the 8/27 high of 181.00).
Jazz Pharmaceuticals (JAZZ) builds a six-month base following an impressive run last year. The stock is under solid accumulation and has recorded five accumulation days in the past three weeks (four major) vs. just one distribution day. JAZZ is potentially buyable above the 166.29 high (7/07) of its eight-week base.
JD.com (JD) is a giant Chinese retailer that should be scoring its first annual profit in 2015, per most analysts. Revenue growth has been major and consistent. Following its public offering at 19 in June, the stock recorded a series of higher lows while building its first base. Price then broke out of this pattern two weeks ago. Sellers emerged on the breakout day to close the stock lower. Since then, price has been up six of eight sessions.
Friday, price found support at its 9 ema which also corresponds to the original base top of 31.22, in other words a logical place for buyers to step up. A pullback entrance presents itself on a takeout of Friday’s high of 32.07. A suitable stop-loss would be below the round number of 30, which also is near the prominent swing high of 30.35 set 7/28.
Linkedin (LNKD) shows a nice accelerating earnings estimate of 47% in ’15 from ‘14’s estimated 16%. Sequential revenue growth is impressive. We do not see enough meat on the bones at this juncture to warrant an entrance in LNKD. Worth watching.
Mobileye (MBLY) develops software for driver-assistance systems and is forecast to show triple-digit earnings growth in ’14 and ’15. Names like this which are also liquid do not grow on trees. Following its IPO four weeks ago at 25, price spent three weeks basing before breaking out a week ago on heavy volume. MBLY is now one day into a pullback and does not offer attractive entrance. Definitely worth watching.
Tekmira Pharmaceuticals (TKMR) is an extremely dynamic actor from the biotech group. Losses are expected in ‘14/’15. The stock is a 99 relative strength issue and is under extreme accumulation. After nearly tripling in just three weeks, price is forming a 40%-deep base within a larger pattern extending back to March. There are five accumulation days and no distribution days in the last three weeks.
A very aggressive player will take TKMR above Thursday’s high, while a less-aggressive operator will allow the stock to show some more consolidation either below Thursday’s high or below the 26.05 high of three weeks ago. In any case, this is not a title that would appear likely to bore anyone.
Tesla Motors (TSLA) on Friday broke out of a six-month base on volume 22% above average. Considering that this was the Friday before a holiday weekend, and a day on which the Nasdaq Composite showed volume of 24% below average, it was considered a success. As of Friday’s close, the stock was not extended and can be taken by a speculator. A reasonable stop-loss could be below the low of the handle (251.62) and the psychological level of 250.
Yelp (YELP) has the necessary octane for richer quotations via its big estimated ’15 growth rate of 344%. The stock forms a two-month, double-bottom-with-handle base within a larger six-month pattern. YELP is buyable on a takeout of the 8/27 handle high of 83.18. The volume on the breakout day should be on track to finish the session at least 40% above the average for volume.
YY (YY) shows estimates of 42% earnings growth in ’15. Price forms a six-month cup-with-handle base. A breakout entrance would be available above the handle high of 90.88.
In summation, the key to the longevity of this advance may be whether volume picks up. This is believed to be necessary to sustain the three-week, low-activity advance. The backdrop has its minuses, such as a Europe getting dangerously close to a deflationary abyss and a stateside yield curve that has been flattening for some time. Technically, the speculative sentiment improves with each day.
And this is what counts.
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