For this column, the new year begins today. The new trading year, that is.
In the rear-view mirror are the remnants of summer, and with them the string of low-volume days that normally pervade during late August. Ahead of us are the volatile and often-pivotal months of September and October, followed by the historically positive November-December period.
These sluggish trading sessions do a good job of disguising the real conviction level of institutional participants.
For a larger chart, please click here.
Chart created using TradeStation. ©TradeStation Technologies, 2001-2014. All rights reserved.
It is the conviction as well as speculative sentiment of these large players that ultimately dictates the fortunes of a momentum player in any given year.
While the three-week rally by the averages was not the most transparent look into sentiment, beneath the surface there was a different story. As noted in Friday’s column, “Recognizing that titles like Pacira Pharmaceuticals
Emerge Energy Services
U.S. Silica Holdings
among others, are breaking out of bases and in most cases under extreme accumulation (institutional buying) is believed to be worth more than 10 crystal balls”
In other words, the “right stocks” — those with dynamic growth prospects — are doing the right things on the tape. Of course, there are others besides those listed in the above paragraph, such as Twitter
up over 60% in less than three months, though the content platform is somewhat extended technically. Ditto for Linkedin
Of import is the fact that many of these are of institutional quality, TWTR and LNKD being examples.
This improving action in certain of the speculative growth glamours has usually led to upward revaluation for the market over the intermediate term. For this reason, every aspiring momentum trader should have an understanding of what these crucial titles are doing technically. For another, a list of top-performing growth plays serves as one’s watch list.
Along these lines, an email came in showing concern over the volume in recent weeks. The response was something along the lines of “Yes…but did you see the moves in names like abc and xyz?”
Otherwise, veteran players, this one included, normally show a healthy dollop of respect for the months of September and October. These months have had their share of downside volatility, which should be respected. However, one should not anticipate anything unless it shows up on the tape. Trade what you see, not what you believe.
Meanwhile, the backdrop worsens on a few fronts, including Europe, which drifts closer to recession and deflation, while the stateside yield curve continues to flatten. The backdrop does not matter to a technical trader focused on the intermediate-term trend, but for sentiment purposes, it sometimes is useful to know how a market acts in response to the backdrop.
Among the names, Jazz Pharmaceuticals
is a specialty drug maker whose focus is on the segments of narcolepsy, oncology and pain, among others. Most analysts who follow the stock on Wall Street expect earnings to grow 30% this year and another 23% in 2015. Revenue growth has been vibrant at 32%, 28%, 26%, and 40% over the past four quarters, respectively.
JAZZ has been an outstanding leader in this bull market, moving from a price below 1.00 in early 2009 to its recent price around 160.00. After hitting a peak of 176.60 in late February, the stock corrected in line with many other growth issues. This is viewed as healthy as it gave the stock a chance to rid itself of any froth built up during its triple from 2013 to early 2014.
Technically, price has been forming a six-month basing pattern. Of positive note are the five accumulation days recorded over the past few weeks. Following a roughly 20% move over a two-week period, price has spent the last several sessions tightening up on reduced volume. This indicates an absence of real profit-taking following this recent 20% rise. This quiet period has the appearance of a handle to go with an eight-week cup, a base-inside-of-a-base (new term).
For an entrance pivot, an aggressive speculator could either use the handle high of 165.28 set on Aug. 27 or the 166.29 high of July 7. Volume should be strong on the breakout day in order to provide confidence that institutional conviction is there.
For a larger chart, please click here.
Chart created using MarketSmith. ©2014 MarketSmith Incorporated. All rights reserved.
While the market enters its worst-performing month historically, there is cause for optimism. A correction is always possible, but the tone of the speculative growth glamours has improved day by day over the past fortnight. This has normally indicated a healthy market and not a primary top in the averages.
For intraday market comments and stock ideas: https://twitter.com/mardermarket
Earnings estimate data provided by Thomson Reuters.
The views contained herein represent those of Marder Investment Advisors Corp. (“MIAC”). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The 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 of any security or strategy 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 MIAC, 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.
View more information: https://www.marketwatch.com/story/theres-good-news-for-speculative-growth-traders-2014-09-02