5-3-2013 Before the Open

I haven't updated my watch lists recently and provide an update here. I drove to San Francisco last week and attended Market School and Chart School over the weekend. These are two great seminars both taught by O'Neil portfolio managers. What is interesting to me is that Charles Harris and Mike Webster have quite different styles. Mike buys strong stocks showing strength and Charles buys strong stocks showing weakness and sells into strength. Charles hits a lot of singles and Mike is a home run hitter but both have about the same over all performance.

The market is choppy. I was lucky I think to avoid the LNDK cratering last night after they reported. LNKD is owned (or was owned) by many-many CANSLIMers. On the flip side I did catch the FLT upside move after they reported. I am still short ALXN since April 12. I am waiting to harvest LL on its next move upward if it comes. The Market Exposure Model buy switch turned back on yesterday with the reversal to new highs shown by the NASDAQ. The exposure count is +2 (55% invested). I am under invested by this measure. The primary issue is that few sound bases have formed, most stocks are extended. Maybe LNKD will give an entry if it bounces off the 50-day / 10-week moving average.

The central bank liquidity and actions I am sure is what is behind the market action. However now I see a pattern that I have been watching for. The Average True Range of the NASDAQ is on an upward staircase pattern which was on the bottom rung back in mid February. This is a pattern I associate with a major market top in the formation process. ATR is a measure of index volatility and as yet the ATR is contained but showing the telltale higher highs and higher lows that have occurred at major market tops in the past. In 2007 we had such a pattern and also in 2007 as now the Russell 2000 is not sharing the major index tendencies of making new highs. We have a bifurcated market with small caps lagging.

Okay here are some long watch list items:

FLT (50-day bounce) may be extended by the time the market opens
PHM (double bottom base hovering near buy point of 21.70)
SBGI (possible high-tight flag with buy point 0f 28.53) These are rare formations and risky but when they work they are spectacular such as TASR in 2003-2004.
USAC (hovering near its pocket pivot buy point made yesterday)
CELG (I own, just now bouncing off of the 50-day)
ARMH (extended above a 44.47 buy point, watch for a pull back to this level)
MDCO (50-day bounce or flat base with pivot of 35.19)
LCC (flat base pivot point 17.43)

With all of the liquidity sloshing around the system I don't recommend extending yourself very far on the short side but a few are working. I normally short something when I believe the market may be topping. If the shorts start working I lean a little harder. Some short ideas:

WFM (H&S, watch for stalling at the 200-day)
ALXN (same as above)
DDD (H&S, watch for a failure at the 50-day)
RAX (H&S, may be stalling at 50-day right now)
OCN (H&S, I debated putting this on a long watch list, could be stalling at the 50-day right now)
COH (H&S, watch for 200-day failure)