http://markminerviniblog.blogspot.co...on-part-1.html
In the stock market, what appears cheap could actually be expensive, and what appears "overvalued" may become your next big winner. Our own historical study of huge price performers found the potential for earnings growth was a much more important factor than the current PE or valuation level.
After a healthy bull run since the beginning of this year, the market's uptrend
is showing signs of stalling in the intermediate term. The action in the major
indices, leading stocks, and my own P and L, tell me that the tenure of the
market may be changing in the intermediate term. Faced with the evidence I
outline below, higher levels of cash, and a defensive posture is probably
prudent until the market's uptrend shows signs of resuming.
The Major Indices
All of the major indices have suffered high levels of distribution in recent
weeks. Our leading index -- the Nasdaq Composite -- has approximately eight or
nine distribution days of its recent high in late March. Indeed, the Nasdaq has
not flashed one above average volume day since February 28. The other major
indices have similar amounts of distribution. Some of the broader indices that
have lagged much of the rally -- like the NYSE composite -- trade well below
their 50-day moving averages, while the s and p 500 and Nasdaq are just slightly
below those important support levels and looked poise to break below those
areas.. In addition, after trending upwards in quiet fashion since January, the
major indices have exhibited volatile up and down action in recent days that can
be symptomatic of a market that needs a rest after a long uptrend.
Faced with this evidence, a cautious tone is certainly prudent, until the market
can show signs of accumulation in the form of a new follow-through day.
Leading Stocks
While most of the leading growth stocks have showed resilience in the face of
distribution in the broader market, some early warning signs are flashing that
the correction could deepen.
Leader AAPL has shown high levels of distribution off its recent high. Last
week, AAPL closed at the low end of its weekly range on its biggest volume week
since its original breakout back in January. The stock is currently sitting on
its ten-week moving average, and reports earnings tomorrow, so this action this
week should give us an important clue about where the market is heading in the
intermediate term.
PCLN is still sitting comfortably above its ten-week moving average, but similar
to AAPL has flashed some high levels of selling volume off the recent highs. A
feeble rally earlier last week occurred on lighter volume. While this stock
still looks in good shape longer term, the high levels of distribution off its
recent high need to be monitored closely.
KORS, recent broke below its 50-day moving average on high volume, and has shown
little inclination to get back above that line. The chart is plagued with high
volume down days and low volume up days, and is another sign that the tenure of
the market's leaders have changed. The stock may be forming its first real base
since its IPO, but nevertheless appears to have lost its "mojo" for the time
being.
CMG was distributed off its earnings report last Friday. Like AAPL the stock
closed the week at the bottom of its weekly trading range on it highest volume
since the move began. Given the run up this stock has had, a basing period
and/or correction would be normal, but the recent action may also be a clue that
the market's tenure has changed in the intermediate term.
Other leading stocks have also broken below their ten-week moving averages on
volume including PNRA, TPX and QCOM.
In addition many tech stocks, particularly in the cloud computing area, contain
extremely wide and loose behavior off their earnings reports, including VMW and
FFIV. Such wide and loose action is not indicative of a strong healthy
intermediate bull move.
Not all leaders are acting suspect, and many continue to hold up well for the
time being, including UA, ISRG, and CRM. However for the first time since
January, many leading stocks are flashing some cautionary signs in the form of
high levels of distribution off their recent highs.
P and L
Another area I used to measure market health is my own P and L. After a long
period of progress, if my own P and L stalls and cannot make much progress for a
few weeks, it can provide an internal feedback mechanism that the market's
uptrend is coming to an end. Indeed, if I were to plot my P and L on a graph,
one might say that it has churned at its recent highs similar to many stocks in
this market. This certainly is something I watch and tells me not to press
things and play defense at this time.
In conclusion, the high levels of distribution in the major indices, some
deterioration in leading stocks, and my own P and L, tell me to play defense and
maintain a decent amount of cash at this time. If the correction does deepen,
this should allow new bases to be built and enough fear and negative sentiment
to set the market up for another potential rally later this year. At a minimum,
until I see a follow-through day and a resumption of the uptrend in leading
stocks, I believe taking a step back and playing some defense is prudent.
Please email me with any comments or questions.
This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing.
Last time I wrote two weeks ago, I concluded with the following observations:
"In conclusion, the high levels of distribution in the major indices, some
deterioration in leading stocks, and my own P and L, tell me to play defense
and maintain a decent amount of cash at this time. If the correction does
deepen, this should allow new bases to be built and enough fear and negative
sentiment to set the market up for another potential rally later this year.
At a minimum, until I see a follow-through day and a resumption of the
uptrend in leading stocks, I believe taking a step back and playing some
defense is prudent."
In the past two weeks, the situation has continued to deteriorate. While the
market managed to stage a feeble rally from deeply oversold levels, the lack of
a follow-through on the Nasdaq Index (the de facto leader of the bull move this
year), coupled with continued wide and loose action in leading stocks seems to
be foreshadowing another leg down in the market correction.
The Nasdaq Composite managed to retake its 50-day moving average two weeks ago
on a big earnings gap-up from AAPL. However in the days thereafter, the Nasdaq
could only rally marginally on low volume, and then suffered a massive stalling
day on Wednesday of last week. Last Thursday and Friday, this index suffered
two high volume distributional days as it broke its ten-week moving average. If
we step back and objectively examine this index, we see a breakdown last month
on heavy volume, followed by a low volume feebly rally with stalling and heavy
distribution late last week. This appears to favor more downside for this index
before the correction ends.
Another clue that the rally was suspect was the fact that the Dow Jones, the
lagging index this year, led the rally and made a marginal new high while the
Nasdaq and s and p 500 failed to do so. Indeed, the s and p 500, like the
Nasdaq, has broken below its 50-day moving average on heavy volume and looks
ready to take out its recent lows.
Leading stocks do not favor more upside from here either. In my last report, I
discussed the high volume break of AAPL to the downside. A quick gap-up on
earnings was nothing more then a headfake, as the stock quickly faded in the
days thereafter and is approaching its old lows from two weeks ago. AAPL, which
had been leading the market higher this year, is now leading the market in the
opposite direction to the downside!
Leader CMG also tells the tale of a stock that seems to have lower prices in
mind. The stock quickly broke down to its 50-day moving average on high volume,
staged a feeble rally on low volume, and now has turned back down again on heavy
volume. The look of the volume bars looks like a red volume sandwich, where the
big red bars are the bread, and the little blue bars are the meat in between.
Red volume bar sandwiches are not something the bulls want to see in leading
stocks.
The leading cloud stocks such as RAX, FFIV, and CRM continue to shape wide and
loose faulty bases. Even the strongest cloud-type stock, EQIX, has been unable
to hold its earnings gap from a week ago. While the stock still is intact on
its weekly chart (for now), the inability of it to hold its earnings gap tell
us, at a minimum, that the market is not rewarding leading stocks bursting into
new highs at this time.
Many retail and apparel stocks attempted to stage breakouts earlier last week
such as KORS, UA, and LULU. However, a close examination of these weekly charts
shows bases that are extremely short and contain some wide and loose action,
which may signal that more time is needed if these stocks want to lead the
market higher. LULU continues to hold its breakout for now, but should selling
persist, the stock is likely going to need to wait for a better market
environment to thrust higher.
Other leaders such as ALXN, V, CLR, BWLD, CF, EL, EZCH, FAST, FOSL, FRAN, HLF,
LVS, NUS, PNRA, QCOM, RL, and UBNT all continue to live below their ten-week
moving averages and show a lack of buying pressure coupled with systematic
selling pressure.
Another issue for the general market (at least in the intermediate term) is the
continued "massacre" in the financial and commodity sectors While these groups
do not contain many leading stocks, they do weigh heavily on the major indices.
It is somewhat disturbing to see the large financials such as BAC, MS, and GS
unable to find bids and continue to sell off and break support areas. This most
certainly is something to be watched closely in the weeks ahead.
Sure we have a few leaders acting well, such as SWI, WFM, and LNKD. But the
weight of the evidence in the market suggests that in the intermediate term, the
general market and most leading stocks have lower prices in mind. Therefore,
the most prudent stance is to continue to maintain high levels of cash and use
any quick bounces that can occur to get into a more defensive posture.
Staying out of the market until the planets align is one of the most important
things one must master to obtain success in the stock market. In due time, a
new uptrend will commence where they were be ample opportunity to reap huge
gains. Keep in mind that the great thing about the market is that one does not
need to play every hand. Unless the odds are in one's favor, the best course is
to stay disciplined and maintain high levels of cash while letting others lose
money because of their impatience and inability to wait for the "fat pitch."
This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing. You were added to this list as
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In my last report dated May 6, 2012, I discussed the continuing technical
deterioration in the market and that:
"[t]he weight of the evidence in the market suggests that in the intermediate
term, the general market and most leading stocks have lower prices in mind.
Therefore, the most prudent stance is to continue to maintain high levels of
cash and use any quick bounces that can occur to get into a more defensive
posture."
In the past two weeks, selling pressure has intensified with the market indices
exhibiting a "waterfall" decline down to their 200-day moving averages. Indeed,
the Nasdaq Composite has corrected 11.4 percent off it highs seen only about six
weeks ago. Areas that lagged the uptrend earlier this year have been decimated,
such as the commodity and financial sectors. In fact many stocks in these
groups have approached lows seen all the way back last October at the end of
last summer's mini meltdown!
Other leading stocks that had been holding up well broke intermediate support
recently, including LULU, UA, LNKD, KORS, PCLN, AAPL, and TDC.
The prudent intermediate speculator certainly had ample opportunity to move to
the sidelines given the "clues" the market offered throughout April and early
May in the form of high levels of distribution in the market indices, and
substantial breakdowns in many leading stocks. With high levels of cash and a
defensive posture still being the general theme at this juncture, the question
now arises whether yesterday's large up day off the lows will amount to a
substantial bottom and rally, or merely a one-day or one-week wonder that
eventually fizzles and leads to lower prices.
The truth is NO ONE knows the answer to that question, and trying to decipher
the answer is a fruitless exercise. As the famous speculator Bernard Baruch
wrote "Don't try to buy at the bottom and sell the top. This can't be done-
except by liars."
Instead, the prudent speculator will simply observe and watch the action develop
over the next few days and weeks to see if a rally confirms an uptrend in the
form of a follow-through day. Indeed, "speculator" comes from the Latin word
"speculari", which means to spy out and observe, or to get the facts, form a
judgment, and take action accordingly. For now, that is exactly what I am
doing: observing, watching and waiting to see if a meaningful rally develops
or if the rally attempt which began yesterday rolls over.
Presently, there is a lack of leadership due to the heavy distribution that
occurred this month. However, there are certainly a few stocks that have stuck
out and resisted the selling pressure and are worth watching should the rally
confirm. They include: EXPE, TRIP, MLNX, SXCI, FIRE, EQIX, GNC, AMZN, EBAY,
SWI, CRUS, ALGN, ULTI and CRM.
Other former leaders which COULD be forming new bases (and have not presently
broken LONGER TERM SUPPORT) include AAPL, CRM, LNKD, UA, LULU, CMG, SBUX, PCLN,
MA, V, ISRG, ALXN, BWLD, KORS, RHT, STX and TFM.
For now we simply Watch and wait to see how the events unfold. If the attempted
rally in the general indices dies and the indices break their longer term
200-day moving averages, what has been a normal intermediate correction could
turn into something of longer term consequence. In that case, high levels of
cash will continue to be the theme of the summer.
However, if the market can follow-through and confirm a rally attempt, some of
the stocks listed above should provide the leadership necessary to propel the
market to higher prices.
Lastly, this is a reminder that I will be speaking at the International Traders
Expo in Dallas, on Friday, June 8, between 4:30 and 5:30 PM. Details can be
found at the following link: http://www.moneyshow.com/tradeshow/d...akerid=815376B
I hope some of you can make the event, and look forward to meeting with those of
you that do. Please email me if you have any questions about the event.
A very pertinent interpretation of SPY outlook based on weekly volume spikes analysis.
http://www.etfdigest.com/commentary/....html#comments
Billy
The major market indices continue to climb higher off the confirmation of the
rally attempt we witnessed approximately seven week ago on July 27. In
addition, a number of liquid growth stocks have broken out and exerted
themselves as market leaders. As I noted in my interview with the MoneyShow on
August 20:
"Over the past week or two, though, I'd say there's been a gradual improvement
in the leadership of the market out there. We've had a few more stocks, which we
can discuss, that gapped up out of bases on earnings and are holding their
gains. Recently we've had a few other of the liquid 'glamour stocks' either
break out into new high ground, or kind of tighten up and are attempting to
break out right now. That missing piece from this rally, which is powerful
leadership, is kind of starting to come on right now. So we have the potential
to be in a transition phase here, where if this rally is going to work over the
next few weeks, you would expect to see a lot of these leading stocks start to
substantially outperform the market indices."
With the major indices last week pushing into new high ground for the year, the
number of new 52-week highs expanding, and little if any distribution, there is
not much to say except the intermediate and long-term trends in the market
remain up, and the market appears to be setting up for higher prices. Any
short-term pullbacks have been nominal and rotational, and have served to pause
and refresh the major indices and leading stocks.
In addition, many sectors that have suffered large amounts of distribution over
recent months continue to repair and rebuild. Areas such as the financials, and
commodity-based stocks have shown impressive accumulation off their lows in
recent weeks, which had led to a "broadening" of the market rally. For example,
the major banks such as GS, BAC, JPM, WFC, and C continue to power higher on
good volume. While buying these stocks does not fit within with my overall
methodology, it certainly is a positive sign to see this sector in gear.
Furthermore, commodity areas such as cooper, gold, silver, and oil stocks
continue to power higher off lower level bases. Indeed, the volume in the gold
and silver etfs -- GLD and SLV -- is quite impressive as these proxies power
higher in their overall secular bull markets.
More importantly, leading growth stocks are powering ahead as the rally gains
traction. For example, leaders AAPL and GOOG powered into new yearly high
ground today ahead of the market indices. In the biotech space, leaders GILD
and BIIB went into new high ground today on good volume.
Last week, we saw leaders LNKD and AMZN power into all time high ground and the
stocks are now digesting their gains quietly on low volume.
Retail leaders GPS, KORS and UA continue to consolidate on low volume after
showing power early in the month.
Even MLNX, which emerged as a leader in the late summer, appears to be
correcting and digesting its massive gains, and despite a quick "shakeout" is
hugging its 50-day moving average, and could reassert itself at any time.
Simply stated, the market remains in a confirmed rally, pullbacks have been
short and rotational, and the leaders are doing what they should be doing --
leading the market higher. For now, I sit back, stay positioned in "core"
leading stocks I own, and ride the uptrend until distribution appears in the
general market and leading stocks
As always, here is my focus list of leading stocks:
AAPL, GOOG, LNKD, AMZN, CRM, KORS, GPS, URBN CRUS, GILD, BIIB, REGN, MLNX, CF
AGU, COST, EBAY, EQIX, EXPE, HD, UA, CAB, PANW, TUMI, PNRA, RAX, SWI, MON, REGN,
CAB, PANW, TUMI, TOL, LEN.
As always, please email me with any questions or comments. And a Happy and
Healthy New Year to all those celebrating the Rosh Hashanah holiday.
There is an excellent series of articles going on at alletf.com that will help many of us to better understand what ETF market makers are exactly doing and therefore get a better execution for our own trades.
For example, why, most of the time, we should avoid placing orders in the first minutes of trading; how is the creation/redemption process going on and how it distorts volume readings; why we should monitor the Intraday Net Asset Value of the ETF; when the ETF liquidity is an illusion or a reality, why hard stops are dangerous with the risk of flash crashes,etc…
Billy
http://alletf.com/content/tag/best+practice
Last edited by Billy; 09-22-2012 at 04:05 PM.
Some interesting market volume statistics and their impact on the big boys trading desks performance. I was quite surprised by the new reality of the profession.
http://finance.yahoo.com/news/wall-s...135753646.html
Billy
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