Market Comment

The Pause

March 25, 2012

“Don’t confuse brains with a bull market.”

        –Humphrey B. Neill

Shares pause to catch their breath as volume and volatility dim. The Nasdaq outperforms in four of the last five sessions.

Meanwhile, the speculative growth-stock glamours continue to regain their past glory.

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From May 2 to October 4, the S&P 500 lost 21.6% on an intraday basis, while the Nasdaq shed 20.4%. This qualifies as a mild bear market.

Accordingly, if one makes the assumption that a new bull market began with the Oct. 4 intraday lows, the unidirectional move since Dec. 19 should not be surprising. This is because the big money in a bull market often occurs in the first year as shares spring back from months or years of relentless selling.

The intermediate-term speculator is normally best served by not attempting to guess at when the next correction presents itself. As fundamentally sound stocks with top growth prospects pass attractive entry points on their chart, the entries should be made. This despite the lack of any pullback in the averages beyond the eight-day, 3.3% reaction of late February into early March.

Among the names, TripAdvisor (TRIP) was discussed in the last report (“…[the Mar. 16] high of 34.92 could potentially used as a pivot.”). The vogue for recent new issues, ‘Net titles especially, augurs for TRIP breaking out of this pattern. As can be seen in the below chart, this is a volatile actor, and position sizing should be adjusted accordingly if one decides to take entry.

TripAdvisor (TRIP) Gilmo Report Stock Chart


Cost Plus (CPWM) was mentioned in last Thursday’s (Mar. 22) MarketWatch column as eminently buyable. The stock subsequently broke out of a cup-with-handle base as shown on its chart below, is now extended beyond the top of this base, and should not be entered. When you see something as classic-looking as this basing pattern, it is sometimes too obvious and will not work. Sometimes the obvious works. This is another sign of the market’s underlying strength.

Cost Plus (CPWM) Gilmo Report Stock Chart


Netsuite (N) has been stalked here for months. With steady and vibrant revenue growth, earnings estimates of 40%/62% for ’12/’13, a rich valuation, and rising mutual fund ownership, this one has most of what we look for in a glamour. It lacks high liquidity (averagedaily dollar volume of about $19MM) and does not have high earnings stability, but does show earnings moving in the right direction for the last six years.

Technically, the view here is that eventually price moves up and through the top of its four-week shelf, and assuming there is some confirming volume on the day of the breakout, N could be entered.

Netsuite (N) Gilmo Report Stock Chart


Spirit Airlines (SAVE) was mentioned in the last report (“…this new high of 20.66 could be used as a re-entry point.”). Expected earnings growth by most analysts is 50%/27% in ’12/’13. The stock is gathering its senses after its recent breakout was turned back. May represent an attractive entry above the Mar. 14 high of 20.66.

Spirit Airlines (SAVE) Gilmo Report Stock Chart

 


Tangoe (TNGO), a software developer that went public in July, is expected by most analysts to book earnings growth of 62%/36% for ’12/’13. At average daily dollar volume of just $8.9MM, this is a thinner number. Price has benefited by some conspicuous accumulation, as shown below. Depending upon the price action over the next few days, either the Mar. 22 high of 19.35 or the Feb. 24 high of 19.90 could be used as a potential entry.

Tangoe (TNGO) Gilmo Report Stock Chart


Brightcove (BCOV) is one to keep an eye on. The cloud-oriented software developer for digital publishing applications has yet to turn a quarterly profit, but doubled in its first four weeks after going public. Also, sequential quarterly revenue growth has been quite solid.

Since the timeframe discussed in these reports is intermediate-term (weeksto months) and not long-term, the strong technical action is more important than the lack of profitability. Worth monitoring for an attractive entry.

Brightcove (BCOV) Gilmo Report Stock Chart


Yelp (YELP), an online provider of reviews of local businesses, is another recent IPO, and like BCOV, has not been profitable to this point yet shows impressive revenue growth. This one was marked up as much as 73% in its first day out. This gets our attention despite the lack of earnings.

Technically, an attractive entry is not available at present, but this gets added to our watch list. A clearing of the Mar. 13 high of 24.40 would represent an aggressive entry with very little support in case proven incorrect. The chart pattern is suggestive of a breakout.

Yelp (YELP) Gilmo Report Stock Chart

 

In summation, intermediate trend, momentum, leadership, and volume are all positive. Few glamours offer attractive entry due to their extended nature. Any correction is expected to resolve itself with upward revaluation, and not lead to a new bear market.

Kevin Marder

Gil Morales & Company, LLC (“GMC”), 8033 Sunset Boulevard, Suite 830, Los Angeles, California, 90046. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to GMC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Gil Morales & Company, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2008-2018 Gil Morales & Company, LLC. All rights reserved.