Thursday, August 21, 2014

JD.com (JD) Attempts IPO Base Breakout Ahead of Ali Baba (BABA) IPO

JD.com (JD), considered the Amazon (AMZN) of China, has grown annual sales by 85% over the last three years and is expected to grow annual sales by 47% over the next three. Earnings are not expected to turn positive for at least another year and a half, but could grow at a triple digit rate once the company turns profitable.

The stock attempted to breakout out of an IPO base on August 19th in volume 121% above average. But the stock reversed and closed at the lows of the day below the $30.80 breakout (not unusual action for a volatile stock). The stock has spent the last two days consolidating around the breakout level and could be in a position to run another 20 - 30% in anticipation of the Ali Baba (BABA) IPO. Traders can attempt to take positions in the current range with tight stops just below $30. 


Full Disclosure: Hold Position


Wednesday, August 20, 2014

Priceline Group (PCLN) Prepares Third Breakout Attempt out of Cup and Handle Base

The Priceline Group (PCLN) advanced over 80% since breaking out of a fifteen month cup and handle based in May 2013 and over 1,000% since the bear market bottom in 2009. The stock broke out of a later stage cup and handle base on August 4th in volume 88% above average and again on August 11th in volume 174% above average. The left side of the base is a bit wild and the relative strength line is in a downtrend, but there are several signs of support on the daily and weekly chart (high volume reversals, reverse churning, and tight closes). The stock has pulled back to the breakout level again and should be considered on a new breakout attempt.

Quarterly and annual sales and earnings growth are expected to grow 22%+ for at least the next three years, and have grown over 25% over the last three. Margins are at their highest levels historically and expanding, and return on equity has been consistently north of 30%. Expanding margins and strong sales growth have helped the company beat earnings by an average of 7.7% over the last four quarters.

Positions can be initiated anywhere between here and the $1,300 handle high breakout. Protective stops should be placed below $1,250. Take the wild and loose, potentially late stage consolidation into account when managing the trade. Limit losses and expect improvement in price volume action as the stock advances or consider quick profit taking.

Our valuation model prices the stock around $1,591 over the next few months, and between $1,800 - 1,916 (39 - 50%) over the next twelve to eighteen months if the company delivers steady growth with expanding margins.

Full Disclosure: No Position



Tuesday, August 19, 2014

Market At New Highs BUT Major Red Flags Persist

The major indices continue their seemingly unabated charge to new and all time highs despite threatening to fall into a correction multiple time over the last few months. But, all the red flags present near the last few attempted tops, still persist today. 

There has been little accumulation since the market bottomed in early August with most rally days coming in diminishing volume. Complacency seems to be settling back in despite a lot of uncertainty around geopolitical events, intra-day volatility is high, the NASDAQ advance decline line is unable to come off the lows even though the Nasdaq is leading into new highs, and the small cap, Russell 2000 and SP 600, and mid cap, SP 400, appear to be setting up a second leg down. About the only good news is the lack of distribution since the below average volume follow through on August 13th, but that can change very quickly in this environment.





















Leading growth stocks as a whole continue to under perform the market and fail to follow through on breakouts. The handful that have followed through are well extended from low risk entry points and appear to be climaxing or running out of steam (volume diminishing). The rest are mired in wide and loose consolidations unable to breakout despite the market rally over the last two weeks. Baidu (BIDU), Facebook (FB), Under Armour (UA), Polaris Industries (PII), and Chipotle Mexican Grill (CMG) have stalled after gapping up in strong volume on earnings, Bitauto (BITA) reversed in heavy volume from what appears to be a climax run, JD.com (JD) attempted to breakout in heavy volume only to reverse to close near the lows of the day and below the breakout point, and Jumei International (JMEI), a recent Chinese IPO, gapped and closed down over 10% after reporting strong earnings. Not the type of action expected out of leading growth stocks during a strong rally. About the only good news here, growth stocks have out performed value stocks during this rally, but that is little consolation with so few making progress.

This appears to be another one of those short lived rallies the market has served up over the course of the last few months, in which making much portfolio progress is extremely difficult. Investors and traders have had to be fast to book profits and minimize losses, or they found themselves quickly under water with most trades building little to no cushion. With all the red flags, traders should once again tighten stops to protect profits and minimize losses. Few positions are worth holding past a few days/weeks if they've made no progress, especially if they are under water. Better to be under invested in this environment, then over exposed.

Monday, August 18, 2014

Chinese Real Estate Company Prepares to Breakout on Earnings - Leju Holdings (LEJU)

Leju Holdings (LEJU), a Chinese online to offline real estate company, is reporting earnings on Wednesday, August 20th, before the opening bell. Analysts are expecting the company to report a profit of $0.15 and sales of $109M, which would represent growth of 88% and 52% respectively. Over the next three years, the company is expected to grow sales and earnings by 31% and 37% respectively. The company beat analyst estimates by 100% in its first earning's report as a public company.

The stock broke out of a cup and handle base on July 23rd, in volume almost 500% above average, but shook out most traders and investors as it fell 8% below the handle high along with the market. Volume on the shakeout was tepid, a good sign. It has recently formed a three week tight pattern on top of the cup and handle base and has been attempting to breakout since.

Based on current valuations and growth rates, the stock could double over the next 12 to 18 months on continued strong earning's reports. Look for a breakout out above the $14 - 14.75 range in heavy, above average volume. Protective stops should be placed around $13. The stock is thinly traded and should be expected to trade in a volatile manner.


Thursday, August 14, 2014

Home Furnishing Stock Ready to Bounce Higher - Restoration Hardware (RH)

Restoration Hardware (RH) gapped up and broke out of a cup and handle base on a strong earnings report, June 12th, in volume that was over 600% greater then average. The company beat analyst earning's expectations by 63% and raised guidance. That was the third time in the last four quarters the company managed to beat expectations by at least 14%. The company has grown sales and earnings over the last three years by 27 and 102% respectively, and is expected to grow sales and earnings by 23 and 207%, respectively, over the next three years.  Margins are razor thin, but have improved slightly over the last few quarters, and return on equity is around 14%, which is normal for a high growth retailer.

The stock has spent the last seven weeks digesting the earnings gap up by pulling back to the fifty day moving average in below average volume. A good sign institution aren't exiting the stock. The stock can be entered between the fifty day moving average and the recent high of around $86. Based on current valuations and an expectation for further earnings surprises, the stock could trade above $100 before the end of the year, as long as the market cooperates. Protective stops should be placed around $80.

Full Disclosure: No Position...Yet



Wednesday, August 13, 2014

Craigslist of China Prepares to Breakout - 58.com (WUBA)

58.com (WUBA) is considered the Craigslist of China. The stock has more then doubled in price since its IPO in November 2013 and is currently setting up a first stage cup and handle base. Volume patterns have been mostly bullish with several weeks of tight closings inside the handle area showing institutional support.

The company delivered triple digit sales and earnings growth in the most recent quarter and is expected to grow sales and earnings over 50 and 100%, respectively, over the next three years. Margins have expanded from 3.2% to 15.6% over the last three quarters with return on equity registering over 50%.

Based on current valuations, the stock could double again over the next 12 - 18 months if it can breakout above the $55 - 57.50 range. A shakeout below the $48 handle support area could present an earlier entry into the stock for aggressive investors/traders.



Review Recent Trading Ideas: 




Wednesday, July 30, 2014

Two Oil and Gas Refining Stocks Poised To Explode on Earnings

Tesoro (TSO) is reporting earnings tonight, Wednesday, July 30th, after market hours. The company beat earnings by 65% the last quarter and has a dividend yield of 1.7%. Earnings are expected to grow 37% over the next three years, but sales only a paltry 3%. If the company can keep surprising on earnings, based on current valuations, the stock could advance another 50 - 100% over the next 12 - 18 months. The stock is forming a first stage flat base on top of much longer cup and handle base. Positions can be initiated as the stock attempts to breakout above the $61 - 63 range. Protective stops should be placed around $57.




Western Refining (WNR) is expected to report earnings on Tuesday, August 5th, before the market opens. The company has beaten earnings over the last two quarters by 7 and 10% and has a dividend yield of 2.4%. The stock is forming a cup and handle base on top of a cup and handle base. The base contains several weeks of tight closes, a sign of major support. Positions can be initiated as the stocks begins to approach the 42.77 handle high. Protective stops should be placed around $41 or the low of the handle. The stock has a technical price target range of $55 - 65. This is a late stage base and will be more prone to failure.




Tuesday, July 29, 2014

Two Major Reasons Market Can Rally Further

The market has tried, today, yesterday, the day before, the day before that, and for the last three weeks, to fall into and follow through on a correction. But no matter how much or how bad the news that has been thrown at it, or how ugly the price volume action (stalling and distribution) has been, the market has been able to hold in a fairly tight range. There has been an elevated expectation of the FED tightening their end of QE and raising interest rate time tables. The worry is probably premature and the FED will stay with its current time tables, potentially sparking another short relief rally.

High quality leading growth stocks, Facebook (FB), Baidu (BIDU), Under Armour (UA), Chipotle Mexican Grill (CMG), and Biogen Idec (BIIB), gapped out of bases in strong, well above average volume, and are holding tight, or, in CMG and BIIB's case, following through, despite the pullback in the market the past three days. New breakouts have been joining the leadership, and more are in the wings ready to breakout. Fleetcor Technologies (FLT) broke out of a flat base on top of a cup and handle base today, in well above average volume, and Chinese stock 58.com (WUBA) and Medivation (MDVN), featured yesterday in, Biotech Company Ready To Explode on Earnings, are on the verge of breaking out of cup and handle bases too. Review the (98) Leading Growth Stocks Analysis for more trading ideas and appreciation potential.


Just keep in mind, all the red flags discussed recently, Frustration Not The Only Reason To Hate The Market and Bearish Price Volume Action Dominates Stock Market, are still in place and cannot be ignored, but the fact that the market hasn't sold off despite having a lot of reasons to do so and leading growth stocks are setting up, breaking out, and holding, warrants taking positions on the long side and potentially using intra-day pullbacks as an opportunity to add more. But, leading growth stocks should keep following through, or aggressively tighten stops to protect profits and cut losses short. This will most likely continue to be another, in a series of short, but profitable rally's, since the beginning of the year.

Monday, July 28, 2014

Biotech Company Ready To Explode on Earnings - Medivation Inc (MDVN)

Medivation (MDVN) is expected to report earnings on Thursday, August 7th. This is the first quarter the company is expected to turn permanently profitable. Sales have grown over 60% the past five years and are expected to grow another 50% over the next three years. Earnings have been negative since the company's founding, but are expected to grow 50% over the next three years, with triple digit growth expected over the next four to six quarters. Analysts have been raising their estimates over the last sixty days.

The stock has spent the last twenty months essentially shuffling sideways after an initial 600+% advance from its cup shaped base breakout on November 3, 2011. The stock has advanced over 800% to its recent high in February, and is currently forming a well behaved, first stage, cup and handle base.

Our short term price target range is $110 - 120 and $160 - 200 over the next 12 - 18 months if the company can deliver and exceed sales and profit expectations, and breakout above the approximate $80 handle high in well above average volume. Aggressive traders could accumulate inside the handle. Protective initial stops should be placed around the $73 - 74 range.

Full Disclosure: Hold Position


Thursday, July 24, 2014

Frustration Not The Only Reason To Hate The Market

The market stalled today in above average volume, making this the 5th distribution day for the Nasdaq and SP 500 in the last three weeks despite the new rally attempt off the twenty day moving average. It seems every time volume runs higher, the market stalls or sells off, but on up days volume dries up. Even on gap up days the last two weeks the market has failed to follow through after the first hour and a half, either stalling for the day or in some cases closing near the lows of the day (7/14, 7/16, 7/22, and 7/23). The advance decline line which has led the market into new highs for the better part of the last year, has lagged as the market is reaching new highs. Accumulation is scant at best. About the only good news, no matter how bad the news, the market just seems to shake it off, for now.



Leading growth stocks are gyrating wildly from day to day, especially intra-day, making initiating and holding positions with tight stops very difficult, if near impossible. Most stocks are just stuck in wide and loose consolidations with just a handful of high quality growth stocks breaking out in above average volume, but out of later stage consolidations, which are more prone to failure. Facebook (FB), Chipotle Mexican Grill (CMG), and Under Armor (UA), gapped and broke out of cup and handle bases.

The story on the short side is not much different. Some stocks manage to follow through to the downside, but most just squeeze back into their consolidations or are squeezing above resistance levels to shake out positions. But most consolidations remain intact and in some cases a few hours to days from tightening up. Ocwen Financial (OCN) and CREE (CREE) are threatening to slice through their respective fifty day moving average in above average volume. Review the short trading ideas section for more potential setups.

Traders can hold well behaving positions, but profits have to be protected and losses minimized. The lack of follow through in either direction doesn't provide enough of a cushion to get aggressive or stay confident in positions. Strong stocks should breakout and keep moving, not stall around the breakout area. Traders should have learned over the past few months, profitable portfolios can turn negative in just a day or two, especially when there are so many red flags.

Tuesday, July 22, 2014

Two Stocks Poised to Implode on Earnings This Week

Gilead Sciences (GILD) is reporting earnings Wednesday, July 23rd, after hours. The company has beaten earnings expectations over the last three quarters and analysts have revised the current quarters earnings estimates over 50% higher in the last ninety days. Margins are at multi-year highs and earnings are expected to grow 79% and sales 35% over the next three years.

Despite the market rally and beating earnings estimates the last two quarters by 10% and 62% respectively, the stock has failed to make much progress since the beginning of the year. It recently broke out of a late stage, v-shaped cup and handle base in below average volume. Since the breakout, the stock has been trading wildly with several above average distribution days, but has managed to hold the twenty day moving average.

The stock is up over 400% in two years and expectations are extremely high. Considering the late stage, v-shaped base, poor price volume action since the breakout, and lofty expectations, an earnings report that fails to amaze the street, will be met with major selling and potentially see the stock trade down below the two hundred day moving average.


Amazon (AMZN) is reporting earnings on Thursday, July 24th, after hours. The company has missed earnings estimates significantly in two out of the last four quarters and analysts have revised their expectations downwards. They now expect the company to report a loss of .15, down from an expected gain 90 days ago, and sales growth of 23%. Long term, the company is expected to grow earnings and sales, 125% and 21% over the next three years.

While the market has been making new fifty two week and all time highs, the stock has been forming a cup shaped base for the better part of this year. Volume is picking up as the stock climbs the right side of the cup, a positive sign, but the majority of the pattern has been formed below the two hundred day moving average, a major negative.

Expectations have been ratcheted down so much over the last few months, that a beat on the top and bottom line, with margin improvement, could launch the stock over $400. But, a miss, especially on the top line and margins, would send investors for the exits and the stock could be down over 10+% in after hours.


Tuesday, July 15, 2014

Bearish Price Volume Action Dominates Stock Market

Price volume action from the start of the rally was worrisome, but over the last two weeks, price volume has clearly turned bearish, indicating the path of least resistance is down. The market has attempted to rally on a few days and reverse higher on others, but volume has failed to materialize. When volume does run higher, the market has either been distributed or stalled (another form of distribution). The NYSE advance decline, the main positive during the rally, has maintained its down trend. The good news is that it marked new highs before the pullback began, indicating that a bear market is not in the cards, yet. But a major correction that feels like a bear market is completely possible.

Leading growth stocks have stopped breaking out and started breaking down. Stocks have bounced with the market the last few days, but volume has been lower. Most will need at least a few weeks to consolidate, while a few could be ready over the next two weeks assuming their consolidation do not fall apart. Of course not all stocks are acting poorly: Whiting Petroleum (WLL) gapped off the twenty day moving average, in well above average volume, on news it was buying Kodiak Oil and Gas (KOG), which itself gapped out of a four week tight pattern on the news. 

Short trading idea stocks have started to roll over in heavier volume and tighten for further downside. Recent breakdowns have been able to hold or follow through to the downside. Middleby (MIDD), Las Vegas Sands (LVS), Bofi Holdings (BOFI) are rolling over at the fifty day moving average in heavier volume.

With the market clearly in a correction, traders should use strength to sell any remaining long positions with little to no profit cushion, and initiate short positions, if their not in cash or short already. Stocks should rollover and keep following through to the downside or consider tightening stops to minimize losses and protect small profits.

Full Disclosure: Position in LVS.

Short Trading Idea: Yahoo (YHOO) Reminiscent of 3COM (COMS)

Yahoo (YHOO), once the search engine leader and internet king, has fallen behind the likes of Google (GOOG), Facebook (FB), Twitter (TWTR), and many more in the new era of Internet 2.0. A new CEO and rumors of an eventual Ali Baba (BABA) IPO, of which Yahoo owns 24%, helped the stock advance just over 250% after breaking out of a cup and handle base the week of October 26, 2012 to its high on January 8, 2014.

The hype surrounding Marissa Mayer's ability to turn the company around has not come to fruition as of yet, if it ever does. Earnings have grown approximately 17% and sales have been negative during the advance. Analyst don't expect much out of the company over the next three years either. Earnings are expected to slow down to 8% and sales will show no growth at all. Not exactly growth type performance that warrants a stock trading at almost thirty times earnings, crediting most of the move more to Ali Baba's IPO then anything the company has actually done.

3COM (COMS) was in a similar situation when it announced the spin off of Palm (PALM), the hottest handheld device before Apple's (AAPL) Ipod and Iphone, in 2000. The company, once the king of modems, ran up over 2,300% from 1992 to 1996, but languished for the remainder of the bull market until announcing the Palm spin off. The stock then ran up up just over 350% in under five months until it topped on the Palm IPO, eventually being taken over by Hewlett Packard (HP) in 2009 well off its all time highs.
















Yahoo is now in the process of forming a head and shoulder top with earning expected today after the closing bell. If the company does not start to show signs of turning sales and earning's growth around soon, the Ali Baba boost will not last long past the IPO. Based on current projections, the stock could fall back to near pre-breakout levels around $15 over the next 12 - 18 months and even lower if the market enters a sever bear market over the next few years.










Tuesday, July 08, 2014

Stock Market Exhibits Danger in Ignoring Warnings

The market suffered a major distribution day today. All the major indices were down close to one percent or more in heavy, above average volume. The SP 500, the lead index, registered its eighth stalling or distribution day in the last four weeks and the Nasdaq registered its sixth. The market has shown little in the way of accumulation since the follow through, except for a day or two here and there in areas where shorts would be forced to cover, squeezed, and longs panicked into buying...near new highs. As expected (Shortage of Sellers Explains Rally), the market began stalling and distributing as the Nasdaq finally joined the Dow and SP 500 at new highs for the year. And nothing like a little fluff over the old highs to squeeze the most bears and trap the bulls.

Leading growth stocks lagged for most of this rally, sold off significantly in higher volume. The few stocks that managed to make progress are now too extended, and most breakouts that failed to make any progress are failing or on the verge of failing. Wide and loose, late stage bases, low volume breakouts, lack of follow through after breakouts, and lagging relative strength lines, plagued leading growth stocks from the beginning. Oil and gas stocks were the highlight of the day, closing higher or at the highs of the day: Pioneer Natural Resourced (PXD), Kodiak Oil and Gas (KOG), Concho Resources (CXO).

Short trading idea stocks have started to breakdown in heavy, above average volume. Costar Group (CSGP) and Alpha Natural Resourced (ANR) rolled off their fifty day moving averages, Amazon (AMZN) and Jinko Solar (JKS) sliced through their ten and twenty day moving averages, and Yahoo (YHOO), Wynn Resorts (WYNN), and Sohu.com (SOHU) sliced through their fifty day moving averages.

This has been a difficult few months to make money on the long side and warning signs (Market Distribution Joins Growing List of Sell Signals) added up by the day. Investors/traders had to take profits, or at a minimum, tightened stops to protect profits in over extended positions, and/or to protect small profits and prevent losses in lagging positions. As seen by today's market action, eventually the market acts on its warnings, and weeks of profits can vanish in a matter of hours. Cash or close to cash with a short or two is the best position. Weak rally attempts over the next few days should provide more short entry opportunities and some day trading long trades.

PREVIOUS MARKET UPDATES

Market Distribution Joins Growing List of Sell Signals - Read More


Shortage of Sellers Explains Rally - Read More


Deceitful Market Difficult to Navigate - Read More


Market Rally Resumes Poor Price Volume Action Dominates - Read More


Trend less Market Atrocious For Traders - Read More



Monday, July 07, 2014

Short Trading Idea: Pharmacyclics Inc. (PCYC) - Late Stage Base Failure

Pharmacyclics (PCYC) has been one of the bull markets biggest winners. Rising over 6,000% after breaking out of a flat base, inside of a cup and handle base, the week of September 11, 2009 above a $2.41 pivot point. At the breakout, the fundamentals were non existent. It was just a story. There was no sales or earnings growth, company was losing money, and estimates showed no signs of strong expectations and more losses.

Today, the fundamentals are fantastic. Sales and earnings are expected to grow 67% and 34% respectively, over the next three years. The problem is, even at lofty valuations, three times growth, the stock is fairly valued at these levels 12 - 18 months out. But a single hiccup, especially after poor recent guidance and estimates for this year and next few quarters extremely poor, could panic institutions into heavy selling.

The stock topped out the week of February 21, 2014 after gapping and breaking out of a late stage, double bottom with a high handle base on a strong earning's report, at just over $154. The relative strength line never confirmed the new high. The breakout failed over the next two weeks, eventually falling 46.7% and slicing through the fifty and two hundred day moving averages in heavier volume.

The stock has spent the last three month trying to breakout above the fifty day moving with little success while the market has rallied, and is currently in the process of stalling at the fifty day moving average for the third time. A breakdown below the fifty day moving average, in heavier volume, could cut the stock in half down into the $50 - 60 range. This would be within range of how far, on average, big winners fall after topping. Protective stops should be placed above $105 or the recent high just before the stock breaks down.

Click To Read Past Trading Ideas

Full Disclosure: No Current Position



Wednesday, July 02, 2014

Short Trading Idea: CME Group (CME)

CME Group (CME) has been forming a head and shoulder top for the last year while the market has been rallying higher. The stock sliced through the neckline in heavy volume back in April and has been digesting that sell off ever since. It has  attempted to rally back above the fifty day moving average three times with no success. The first two attempts were in below average volume and recently the stock has been stalling in heavier volume...no price progress. A decisive break, in heavier volume, below the fifty day moving average, could see the stock fall to new fifty two week lows and next support levels in the low to mid $60's. Protective stops should be placed around $72 to protect from major losses.

Full Disclosure: Hold Position


Thursday, June 26, 2014

Market Distribution Joins Growing List of Sell Signals

The market has rallied despite uncertainty surrounding Ukraine, Iraq, the economy, and upcoming earnings. Price action has been impressive, shaking out early in the day and closing higher or at the high's of the day on most days, but below average volume has been a major concern. Over the last two weeks, volume has expanded, still below average, but the market has failed to make much progress. Most of the higher volume days have either stalled or turned into a distribution day, higher volume selling. The lead index, the SP 500, has experienced four to five distribution days over the last three weeks, a major warning signal.

The NYSE advance/decline line continues to make new highs, but the fifty two week high low ratio has fallen despite the market trading at fifty two week highs...less stocks are participating in the upside. The VIX and bull bear ratios indicate extreme investor complacency, trading near bull market extremes. Interest rates have been falling and gold has been rising. A stealth attempt to rush to safety? 

Leading growth stocks have lagged the entire rally. They have shown signs of life on several occasions, but have failed to sustain any momentum. Value stocks have been the clear leaders and the market has behaved accordingly, choppy and difficult to make progress in. Early breakouts have either become over extended, exhibiting climactic action, or lack volume, with many failing to make much progress. Relative strength has failed to confirm many recent breakouts, and most are late stage, wild and loose consolidations.

Netflix's (NFLX) handle has been wedging along the lows. Pacira Pharmaceuticals (PCRX) is a wild and loose, late stage breakout in weak volume. Celgene (CELG) broke out of a v-shaped cup and handle but the relative strength line has not confirmed. Hi-Crush Partners (HCLP) is extended historically and in the midst of a potential climax run, up over 25% in a few weeks after a long advance. Bidu (BIDU) and FaceBook (FB) have attempted to breakout from wild and loose cup and handle bases, but failed to make much progress and the relative strength lines are lagging. Home builders, Toll Brothers (TOL), Lennar (LEN), and Standard Pacific (SPF), have attempted to build cup and handle bases, but the relative strength lines have lagged and the consolidation are wild and loose. Oil and Gas stocks have been the clear leaders, Sanchez Energy (SN) and Pioneer Natural Resources (PXD).

The divergence between market direction and sell signals has become "normal" stock market behavior over the last year and a half, during rallies for short periods of time. But when the convergence begins, traders and investors had little time to react. Hard earned profits vanished and quickly turned into losses if traders hesitated to protect profits and minimize losses. 

The market is in a perfect position to frustrate longs and shorts at the same time, slowly killing them from over trading, a death by a thousand cuts. Traders should be extremely selective with new positions and hold only well behaving positions. Without hesitation, protect profits in over extended positions, and book minor profits or minimize losses in lagging stocks. Better safe then sorry with all the sell signals.

Friday, June 20, 2014

Trading Idea: The Priceline Group (PCLN) - Cup and Handle Base

The Priceline Group (PCLN) advanced over 80% since breaking out of a fifteen month cup and handle based in May 2013 and over 1,000% since the bear market bottom in 2009. The stock is currently forming a cup and handle base, which could be considered a late stage base depending on base reset rules (vary by strategy). The left side of the base is a bit wild and loose and volume barely materialized as the stock climbed up the right side, but there are several signs of support on the daily and weekly chart (high volume reversals, reverse churning, and tight closes). The stock may need to re-consolidate to tighten up, but should be considered on a breakout attempt.

Quarterly and annual sales and earnings growth are expected to grow 20%+ for at least the next five years. Margins are at their highest levels historically and expanding and return on equity has been consistently north of 30%. Expanding margins and strong sales growth has helped the company beat earnings 3.6%, 7.1%, 6.8%, and 12.9% over the last four quarters.

Positions can be initiated anywhere between here and the $1,300 handle high breakout. Protective stops should be placed below $1,180. Take the wild and loose, potentially late stage consolidation into account when managing the trade. Limit losses and expect improvement in price volume action as the stock advances or consider quick profit taking.

Our valuation model prices the stock around $1,430 over the next few months, and between $1600 - 1,837 (33 - 53%) over the next twelve to eighteen months if the company delivers steady growth with expanding margins.

Full Disclosure: No Position


Wednesday, June 18, 2014

Trading Idea: Western Refining Inc. (WNR)

Western Refining Inc. (WNR) advanced over 1,400% after breaking out of a bottoming base at the end of 2010 through the beginning of 2013. Over the last year, the stock has been digesting those gains and forming a flat base on top of a cup and handle. The recent flat base is the tightest structure in the entire year long structure. The relative strength line has been rising through the consolidation, but still needs to prove it can breakout to new highs along with the stock. Price action within the consolidation has been positive and favors accumulation. There have been several days and weeks with high volume reversals and volume diminished on down days/weeks. Indicating institutional support and lack of selling.

Quarterly sales growth has accelerated for three straight quarters from 0 - 70%, and are expected to grow over 20% in the next two quarters with annual sales growth at 24%. Earning's growth has been negative in recent quarters, but expected to accelerate to 93% over the next four quarters. The company has beaten earning's estimates three out of the last four quarters by 4%, -35.3%, 7.1%, and 10% respectively. Estimates have been revised higher over the last ninety days. Return on equity is 35% but falling margins could be a problem. The stock also yields 2.6%.

Our fundamental and technical valuation model values the stock between $60 - $80 (50 - 100% appreciation) over the next twelve to eighteen months if the market rallies and the company can keep surprising to the upside. Aggressive investors/traders can start initiating positions as the stock attempts to break out above the fifty day moving average, between $40 - 45. Protective stops should be placed around $38.

Full Disclosure: No Position


Monday, June 16, 2014

Trading Idea: Centene Corp. (CNC)


Centene Corp. (CNC) gapped out of a second stage cup and handle base on April 22nd, in volume 551% above average, after reporting stronger then expected earnings. The stock has run up 17% and is currently pulling back to the twenty day moving average, forming a three weeks tight base in quiet volume. A breakout above the base high around $76 would confirm further strength.

Quarterly sales growth has accelerated for two straight quarters, from 15% to 31% and is expected to continue accelerating for the next three quarters to 39%. Margins have doubled over the last four quarters and return on equity has accelerated from 6.8% to 15.1%. Accelerating sales growth and rapidly expanding margins lead to upside earnings surprises and higher stock prices. The company beat earning's estimates by 32% last quarter.

The twelve to eighteen month price target range is $112 - 134 (50 - 80%). Short term, the stock can trade above $80 if the rally continues. Protective sell stops should be placed between $70 - $71 to protect from a major loss.

Full Disclosure: No Position


Tuesday, June 10, 2014

Shortage of Sellers Explains Rally

Today was no different from any other day since the market starting rallying in May. A few frightening intra-day shakeouts reversed to close at the highs of the day. The DOW, SP 500, NYSE, and now the even the Nasdaq and Russell 2000, are within striking distance of new fifty two week highs. Price action of the indices has been positive and the NYSE advance decline line is confirming the strong price action by leading into new high ground. Unfortunately, below average trading volume is a major concern. It indicates that the rally is a result of a lack of sellers, rather then real buying.













Leading growth stocks have had a few good days here and there, but overall display major weaknesses. Most growth stocks remain unable to breakout or rally from below or off their moving averages, new consolidations are late stage or wild and loose with volume drying up as the stocks have attempted to rally to pivot points, and breakouts have failed to follow through, lack volume, or lag significantly. The handful of stocks that managed to follow through, come from groups and sectors considered value type safe havens because of their dividend yields...energy, healthcare, utilities, REITS, etc.

Based on the VIX and bull/bear ratio, traders and investors are extremely complacent. The VIX is at rally and eight year lows, and the bull/bear ratio is near the widest spread of the entire bull market.













This rally is like every other short rally we've had in the past year and a half. The market turns suddenly higher after a string of poor headlines, and proceeds higher almost unabated for a few weeks, only offering a few hours during intra-day shakeouts to initiate positions. But this time it is different. Volume has failed to confirm the indices strong price action, consolidations are later stage bases and wilder and looser, breakouts have failed to follow through significantly, lack volume, and/or relative strength, and investors and traders are extremely complacent...few calls for a pullback or correction. Trader's don't need to rush to cash, but with little profit cushion since the rally began, gains can turn to losses in one bad day. Review and tighten stops to protect profits and prevent major losses.

The exact timing of a correction is hard to predict, but with so many active warning signs, it wouldn't be surprising if the market started getting distributed once the Nasdaq and Russell 2000 join the remaining indices at new highs...the optimal area to trap the bulls and squeeze the shorts. The good news, the new highs by the NYSE advance decline line indicates that a major bear market is not in the cards, but a major correction that feels like the start of a bear market could be.