Shares appear tired as the focus turns to Washington and the possibility of a sequester. A few fissures develop among leading issues in what remains a broad advance.
Some believe the current phase, led by small-capitalization and cyclical issues, is frothy and emblematic of the final blow-off phase of a bull market. Perhaps.
At this point, it is logical to expect at least a 3% to 5% short-term reaction in the averages. At the same time, a medium-term speculator would do well to base decisions on what the market has already done, not on what he thinks may happen. Because there has not been wholesale dumping of leading names, it still makes sense to enter selected titles as they reach attractive entrances.
Otherwise, the typical pattern followed by practitioners of this strategy is to develop some experience and expertise with the method over one or more market cycles. At that point, the realization may occur that the biggest gains come from force feeding one's capital into the top performers of a market advance. In other words, holding fewer, concentrated positions, with use of margin as an option.
This approach will never win the award for the most prudent speculator, but it will go a long way toward outsized performance, albeit with significantly higher risk. It is to be remembered that leading growth titles tend to correct 1.5 to 2.5 times the averages, and more, in a general market correction.
Add concentrated position sizes plus the potential use of margin, and an account can be overly sensitive to a simple 3% to 5% reaction in the averages.
Among the names, LinkedIn LNKD � and Pharmacyclics PCYC ,� are two of the more impressive of the current crop of glamours. Neither, however, should be considered ripe for buying as both are extended above their most recent basing areas, and by a wide margin.
The general rule of thumb when pursuing a breakout strategy is to let the stock go if it moves more than 5% past the top of its base or other entrance point: Don't touch it. This can be quite frustrating, especially when a stock continues to surge for a number of days or even weeks following its breakout.
Yet it is discipline and patience that will largely dictate the success of a speculator. Discipline to follow the rules, including not buying extended names, and patience to wait for them to set up.
For the newbie to this strategy, watching one name break out and eventually move up 25% or 40% before pausing to build its next base � all without the newbie on board � may be enough to change the game plan from reactive to proactive. This means making a watch list and assigning an entry price to each stock on the list.
Having said this, there will always be one or more titles that end up becoming big winners that are simply missed or overlooked. For this column, Equinix EQIX � was one such name in January 2012. At the time, the temperature of the general market was not quite warm enough for speculation. Within a day or two after EQIX broke out, the averages had ripened enough to open the accumulation window. But EQIX had already left the barn. The stock went on to become the glamour of glamours in that first-quarter rally.
So despite good intentions, one is unlikely to kiss all the babies in a market advance. Speculators should not lose focus on PCYC and LNKD. Other suitable entry points may develop in the coming weeks and months, much of this a function of the general market's health.
Eagle Materials EXP �, a manufacturer of gypsum wallboard and cement products, is one of the numerous plays on the housing sector's resurgence. Earnings are expected to grow by 198%/74% in the March 2013/2014 fiscal years. Top-line growth has been 22%, 29%, 22%, and 33%, respectively, over the past few quarters.
Technically, EXP has doubled over the past year. After pausing for a five-week flat base with a depth of just 7.6%, price broke out on Thursday, with volume increasing to 28% above average. Friday, the stock rose again, this time turnover growing to 89% above normal. With price just 2.4% above the base top, a potential entry presents itself at current levels, with the standard 5% to 7% stop loss to be used to mitigate the risk of being incorrect.
Interxion Holding INXN � is a provider of colocation and managed services to enterprises. Most analysts see earnings growing 38%/21% in the 2012/2013 years. The stock is working on a six-week base with a potential entry pivot of 25.02. INXN has a $1.6B market capitalization and trades an average of $10.3 million each day, making it less liquid than preferred.
In summation, market action dulls as the specter of forced spending cuts permeates proceedings. Most growth titles have cleared bases, with relatively few taxiing onto the runway. A reaction in the averages can logically be expected.
Charts created using LinkTextChunk((LinkChunk)chunk). �TradeStation Technologies, 2001-2013. All rights reserved. All mutual fund ownership and earnings estimate data provided by Thomson Reuters.
The author has a position in LNKD.
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, MIAC, or an affiliate thereof held a position in LNKD, 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.
No comments:
Post a Comment