A Lesson in Valuation - Part 1
[url]http://markminerviniblog.blogspot.com/2012/04/lesson-in-valuation-part-1.html[/url]
[QUOTE]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. [/QUOTE]
Ed Hornstein's latest, as of April 23.
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.
Ed Hornstein's note of May 22
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: [url]http://www.moneyshow.com/tradeshow/dallas/traders_expo/speakers/speaker_details/?speakerid=815376B[/url]
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.
Using Volume as an Indicator
A very pertinent interpretation of SPY outlook based on weekly volume spikes analysis.
[url]http://www.etfdigest.com/commentary/SPY-Using-Volume-As-An-Indicator.html#comments[/url]
Billy
The Future Is… A Liar’s Poker Market
[url]http://etfprophet.com/the-future-is/[/url]
Grim outlook at end of article
[url]http://www.nytimes.com/2012/09/16/nyregion/the-lonely-redemption-of-sandy-lewis-wall-street-provocateur.html?pagewanted=1&pagewanted=all[/url]
Best Practices in ETF Trading
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
[url]http://alletf.com/content/tag/best+practice[/url]