“Charting is a little like surfing. You don’t have to know a lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.”
— Ed Seykota
Shares remain ensconced in a solid intermediate-term trend of six weeks’ duration. Institutional participants returned to the feeding trough last week, with the Nasdaq putting in two major accumulation days in three sessions.
The backdrop remains that of a Europe in flux and a sluggish domestic economy. Each sobering news item out of the Continent hits the wires with diminished impact on prices. The is the market’s discounting mechanism on display.
The news may matter, but it is the market’s reaction to the news that counts. This year is pretty much a closed book. Participants are looking ahead into ’12, and they see an improvement. Exactly what that improvement may be is of less import to the position trader than the fact that it is being baked into today’s prices.
As mentioned in our last report of Sept. 8, “…the biggest positive lies with the action of the speculative growth-stock glamours. It is doubtful that these issues would be building bases and firming if the market was of the opinion that it needed to take out the August lows in order to properly rebuild.
…as the world burns, positives outweigh negatives, improvement in leadership is enough for the intermediate-term speculator to wade back into the water off his or her 100% cash position. The 16 shares listed herein represent most of the current cycle’s emerging growth-stock leadership.
Broad sector leadership is close to where you would like to see it.
Exhibit B:Exhibit C:
Leadership is very much of the early-cycle variety: speculative growth, conservative growth (Avon, Allergan, Autozone, Herbalife, among numerous others), and retail, including discounters, apparel, and restaurants (Deckers, Dollar Tree, Ross Stores, et al). Normally, this list would include interest-sensitives such as the banks, brokers, builders, mortgage lenders, etc., however for obvious reasons these are not represented at this time. A few consumer lenders are, however, participating, including First Cash Financial, Cash America International, and DFC Global.
Among the names, Alexion Pharmaceuticals (ALXN), mentioned in our last report as a stock that could potentially be purchased above the high of 60.81, cleared this pivot Thursday on volume 40% above its average, only to see the bears offer a rebuttal on Friday as volume came in 44% above average, in the below chart.
Athenahealth (ATHN). It was mentioned in our last report of Sept. 8 that it “…could potentially be picked up right here, as it is not more than 5% or so past its base-top”. Since then, it has moved up 9%, aided by two major accumulation days.
Amazon.com (AMZN) offered perhaps the breakout of the week, coming out of a seven-week pattern on volume 97% above average. The stock’s RS line had preceded price into new-high ground, a bullish omen.
Lululemon Athletica (LULU) was mentioned in our last report as offering an aggressive speculator a potential cheater pivot point in the form of 8/15’s high of 59.75.
Beauty store operator Ulta Salon Cosmetics and Fragrance (ULTA) we mentioned in our last report as appearing “…poised to take out resistance at 60-61. We would let the stock build more of its base before contemplating entry.” The stock could potentially be purchased right here, using an 8% stop.
Pricesmart (PSMT) was one of the first glamours to break out in the current six-week market advance. Finding a way to squeeze into a position in one of the first breakouts can reap dividends later on. As such, regarding PSMT, in our last report it was mentioned that “Although the stock is more than 5% past the top of its base, and is therefore ‘extended,’ one way to squeeze into a position would be to take a half-sized position at current levels. This would allow one to use a wider stop and still be within the recommended 5%-7% range for a stop-loss. The remaining half of the position could be added as price moves in the right direction.”
The stock is up 9.9% since the above was written, as the below chart shows. The stock is not believed to offer attractive entry at present, and therefore should not be chased.
Apple (AAPL) could potentially be purchased right here. The stock is a giant-capitalization issue, and thus should not be expected to be among the most outstanding performers of a market advance. It is nonetheless expected to outperform, as it has done recently.
Among others, Chipotle Mexican Grill (CMG) could potentially be entered at the cheater pivot above 8/15’s high at 321.58.
In our last report, it was mentioned that Green Mountain Coffee Roasters (GMCR) has the potential to “be taken above 8/3’s high of 111.42 on confirming volume.” Since then, this liquid glamour did take out the pivot on volume 38% above average, though the follow-through has not yet transpired.
Cerner (CERN). In our last report, it was mentioned that “The stock could potentially be had on a takeout of 8/31’s high of 67.93.” Last Wednesday (9/14), the stock took out this high on volume 15% above average. The volume has not been impressive in CERN for the past few weeks.
Under Armour (UA) has a fairly deep base considering its duration and may be monitored for a possible pullback/handle.
Cash America International (CSH) barely cleared the top of its base late last week on three straight accumulation days, two major. Technically, the title has shown it has the goods. The negatives are estimates of 13%/15% in ’11/’12 and a 14 earnings multiple. Neither of these are generally what you see in a dynamic leader. However, our emphasis on estimates does not imply that no leaders have ever had low earnings estimates or low earnings multiples. The market can do whatever it wants. There have been big leaders with negative earnings estimates and there have been big leaders with single-digit multiples.
Recent new issue Tudou Holding (TUDO) may be worth watching, but needs to do some work in consolidation mode.
Zillow (Z). The last report mentioned that “The aggressive speculator could use 9/1’s high of 37.99 as a potential pivot point for a junior position, which could be added to should price move in the right direction.” The stock could not take out this level over the next few sessions, and has since retreated to lower levels.
In summation, after a fortnight of seasonal slowness, last week saw the institutional participant begin to participate. Individual leadership is ample and acts well. Sector leadership impresses. The Naz has outperformed in eight of nine sessions. Conditions remain ripe for intermediate-term speculation.