“If you’re not close to the markets, you’ll lose money. If you’re too close to the markets, you’ll lose money twice as fast.”
– Robert Prechter
Breadth is believed to have already peaked for the cycle. It is logical, then, to expect the breadth of the leadership and the market generally to decline from here as monetary policy tightens. The speed of this decay will likely dictate the rate at which the fuse burns before the market puts in a primary top.
A multiyear bull market is comprised of a few intermediate-term advances interrupted by a few intermediate-term corrections. The intermediate-term speculator need only pay attention to her chosen timeframe. For one who sits on legacy positions picked up earlier in the bull market, the main thing to be aware of is that they do not ring a bell at the top. A top will typically occur with the skies blue and no clouds to be seen. Therefore, waiting until the news gets bad or a consensus exists among market participants that shares are headed for a bear market will likely be well after a top has already been printed.
Again, speculators in the medium-term timeframe do not need to concern themselves with predictions. Understanding what the market is doing each day and week on a technical basis is more than enough.
Meanwhile, there are very few glamours setting up in actionable bases. Last week saw the last wave of them break out, including Evercore Partners (EVR), Ulta Salon Cosmetics & Fragrance (ULTA), Nq Mobile (NQ), Pacira Pharmaceuticals (PCRX), Chipotle Mexican Grill (CMG), Bonanza Creek Energy (BCEI), Starbucks (SBUX), Acadia Healthcare (ACHC), Trulia (TRLA), Concur Technologies (CNQR), Mastercard (MA), Acadia Pharmaceuticals (ACAD), Netsuite (N), Diamondback Energy (FANG), Cornerstone Ondemand (CSOD), YY Inc (YY), et alia.
Monday saw some liquidation in Under Armour (UA), Infoblox (BLOX), Nq Mobile (NQ), and even one of the Four Horsemen, Facebook (FB), that appeared out of character. However, it was not widespread and should not be made too much of – that is, unless it continues! In the case of FB, it is now off 6.8% from its high. Last week showed some churning on the below weekly chart, as price reversed just 62 cents past the stock’s high set on its first day of trading. This seems a logical place for some to exit positions and sell into the move, causing the reversal.
Among the names, Tesaro (TSRO) is a 97 relative strength stock in the 98 rs biotech group. This is a development stage outfit focusing on the cancer niche, with no earnings or revenue, and none expected this year or next. The number of mutual funds that sponsor the stock has ramped in recent quarters from 60 to 81 to 122 to 151. Technically, price forms a three-month pattern from which a cheater entrance exists above the 7/18 high of 40.99.
Ulta Salon (ULTA) is a beauty-store chain operator that the Street expects to post earnings growth of 24%/26% in the January ‘14/’15 fiscal years. ULTA was a big leader earlier in the cycle. After going up about twentyfold, the stock had been doing nothing for the past year-and-a-half. This was a normal work-off of the prior run-up. Friday’s 17% jump on volume six times normal is not something we would be jumping to buy just yet. But it warrants adding to the watch list after a long absence.
Nq Mobile (NQ) is a Chinese provider of security software that most analysts see growing earnings by 58%/26% in ’13/’14. Sequential revenue growth is impressive after exceeding 10% for a number of quarters. After going from 7 to 20 in seven weeks, the stock broke out of a four-week pattern late last week.
While Monday’s showing, a big outside day, was not exactly auspicious, we would be watching for a possible pullback entrance in coming sessions. A 99 rs issue in a 95 group. While liquid, NQ is not heavily sponsored by institutions, and thus its expected volatility is greater than what we would prefer.
A high-quality company is one that grows earnings at a substantial clip, yet does so with a high degree of stability. Celgene (CELG) is just such an outfit. The biotech firm with a focus on cancer and immune-related conditions is expected to put up earnings growth of 22%/21% in ‘13/’14. The stability of its past earnings is equal to a standard deviation of just 2%. This puts it in the rarefied air of the very top companies when measured by earnings stability.
CELG forms a six-week cup-with-handle base. Monday’s high of 151.20 represents the high of the handle and also a potential entrance pivot.
With the Four Horsemen grabbing the market’s attention in recent months, another liquid glamour, Priceline.com (PCLN), has quietly been clearing well-defined congestion areas as it moves up 38% in four months. In fact of all the publicly-traded companies, it is this one that has tacked up the second-heftiest return post-Lehman. Earnings growth is still expected to be robust, at 28%/23% in ‘13/’14, and revenue grew 26% and 27% in the last two quarters, respectively.
The stock forms a crisp, tight, five-week base that is reminiscent of a cup-with-handle. Depth of this pattern is just 6.7%. Volume has dried up nicely during the base. The 9/11 high of 985.77 represents a potential entrance.
Aegerion Pharmaceuticals (AEGR) is expected to finally turn profitable in ’14, per most analysts. This is a 99 rs stock in a 98 group. Following a 71% move in five weeks during the summer, price has been forming a constructive, seven-week base. Volume has generally softened during this time. The biotech group preceded most others into new-high ground coming out of the recent reaction in the averages. We would look at this as a potential breakout setup above the 9/10 high of 97.25.
Vipshop Holdings (VIPS) is expected to go from a per-share loss of 4 cents in ’12 to a 93-cent profit in ’13 and $1.80 in ’14, the latter amounting to a 94% growth rate. Despite average dollar volume of $35MM, this is not a highly-sponsored issue among institutions. Therefore, higher volatility can be expected.
VIPS forms a five-week cup that appears to be two days into the formation of a handle. We would look on this base as offering a potential entrance if price was allowed to spend at least another couple of days on handle construction. This is a 99 rs stock.
Green Plains Renewable Energy (GPRE) is expected to see earnings grow 100%/54% in ‘13/’14. Following a move of over 50% in just five weeks during June and July, the producer of ethanol and corn oil builds a seven-week cup that has seen 50-day support three times in the last month. Worth watching to see how it rounds out the right side of this base. This is higher-risk, as the stock trades an average of $7.3MM in dollar volume per day, not the most liquid issue.
Pandora Media (P). This one we are watching from a distance. The last three breakouts did not follow through properly. Thursday’s 12% vault on volume has our attention, as does the 98 rs rank and the stock’s 200%+ move in the last 10 months. This will need to prove itself, however, as P can be volatile. Given the character, no entrance at present is attractive.
Tesla Motors (TSLA) could be taken by an aggressive operator using a junior position coming out of its current three-week shelf. As we have said before, abbreviated patterns like this one can work in two circumstances: either the beginning of what appears to be a new bull market, or an otherwise strong market advance.
In summation, there are not a lot of attractive opportunities left on the table for the speculator whose focus is on the growth-stock glamours. A few of the titles listed herein would not have made the grade a few weeks ago. Since we are grading on “the curve,” they are included here for either aggressive speculators, swing traders, or participants whose mandate involves an above-average number of holdings. We would continue to hold a generous cash position while we await new opportunities to set up. Institutions continue to want to play the game.
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