Tag Archives: market lab report

Market Lab Report – Premarket Pulse 4/19/16

Major averages recovered from their gaps lower on news of the failed Doha talks by major oil producers, and managed to finish higher on mixed volume. Oil also gapped lower by some 4% but managed to recover much of this drop on news of the oil strike in Kuwait as well as short-covering. MDM and VVM both went to cash at yesterday’s open. As we know, the last couple of years have been quite challenging, thus at certain junctures, profit taking can be prudent especially when risk/reward favors it. And protecting profits while minimizing risk has been essential. The number of various recent headwinds adds weight to the risk side of the equation. Such headwinds include the ongoing lackluster performance of leading stocks as well as the rallies in the major indices that are getting long in the tooth as this is the longest, sharpest rally in the NASDAQ Composite without any minor correction since early 2012. The current rally even beat out, just barely, the rally that started in Nov 2012 which marked the anticipation then the start of QE3. Another factor is that oil has correlated closely with equities especially this year. With oil gapping lower by 4% before yesterday’s open due to the failed Doha talks by major oil producers, the start of a sharp correction could have occurred, thus boosting risk in continuing to remain on a buy signal in the MDM and a sell signal in the VVM. Of course, QE continues en masse so the capital has to go somewhere, thus yesterday’s action certainly shows the resilience of the markets. Still, QE has been with us since late 2008, yet markets always still undergo some sort of correction, however mild, which the current rally has yet to undergo. With the US having exited its QE program quite some time ago, this somewhat counters the QE moves by other central banks. Nevertheless, some trends can go a lot further than expected, so the models could go back into the market depending on risk/reward as it evolves.

Market Lab Report – Premarket Pulse 4/18/16

Major averages continue to consolidate gains as they finished close to break even on higher options expiration volume. Leading stocks continue to remain unimpressive in their showings with the big cap FANG stocks continuing to lag the major indices somewhat, or at least are failing to put in a leadership-quality showing. Indeed, projected GDP numbers have been revised sharply lower by the Atlanta Fed while S&P earnings continue to decline. Meanwhile, economic data such as CPI, PPI, Retail Sales, Business Inventories, and Industrial Production and Capacity Utilization among others all fail to meet consensus estimates. So while the fundamentals remain poor both at home and abroad, central banks are so far winning this tug-o-war as they continue to print money which finds a home in equities. “Don’t fight the Fed” has become “Don’t fight the Feds.” Still, some notable headwinds include slowing global growth, downside earnings surprises, and the failed oil producer meeting in Doha. Despite all the noise, our Market Direction Model has stayed with the trend and has remained on a buy signal since March 1st. Of course, this could change as the market’s reaction to news is more important than the news itself.  Futures are lower by about -0.4% after the failure of key oil producers to agree on a production cap that could have tightened up the supply market. Hopes for a deal were a main catalyst in a rally that lifted U.S. crude prices more than 50% from their February lows. Oil is currently off about 4%. That said, helping oil prices is the declining production in the form of shale players in the U.S. Crude production in the U.S. is forecast to fall to an average of 8.6 million barrels a day in 2016 and 8 million barrels a day in 2017, said the U.S. Energy Information Administration. Also, Kuwait will slow its production as workers strike by roughly 1.5 million barrels/day. “Now it is a question of speed to see if the rate of U.S. production decline can offset the growth in OPEC production. If not, the oversupply will linger longer and prices will stay depressed,” said Nelson Wang, an energy analyst at CLSA.

Market Lab Report – Weekly Review of Pocket Pivots and BGUs for the Week of April 12-16, 2016

Mellanox Technologies (MLNX) GM – MLNX has been in an uptrend for some time now, and strikes me as being in an extended position overall in its pattern. There is a pocket pivot on February 22nd that looks more opportunistic. At this stage, with earnings expected this coming week on Wednesday, I don’t think its worth taking a shot here as there is no profit cushion in the stock. I would wait to see what, if anything, develops after earnings – there is no reason to play “earnings roulette” with this one. Dr. K – MLNX got support at its 20dma on Friday closing midbar. If you own this, MLNX could be sold on any break below its 20dma, or slightly below its Friday low.    New Oriental Education & Technology Group (EDU) GM – EDU is expected to announce earnings this coming Tuesday, and as with MLNX I see no reason to try and play “earnings roulette” with this ahead of earnings. In the past, pocket pivots that occur just prior to earnings were reasonable clues of a positive earnings reports, but that correlation has not held up as well in the current environment. These days I prefer to have a profit cushion in any name if I’m going to hold it through earnings. Dr. K – A pocket pivot that is not extended can sometimes move higher over the next few days. EDU has not so in keeping risk to a minimum, selling before it reports earnings is probably prudent. The last two earnings reports pushed the stock higher, but the report before those two gapped the stock slightly lower. Keeping risk to a minimum is essential in this environment.    Vulcan Materials (VMC) GM - VMC is in a reasonable buy position here using the 20-day moving average as a nearby selling guide. The stock is just starting to emerge from a cup-with-handle formation. We can see that an attempt at higher highs five trading days ago on the chart was soundly rejected, but VMC could make another run for new highs before it is expected to announce earnings on May 5th. Dr K  – VMC has managed to outperform the S&P 500 with its healthy group rank and strongly accelerating earnings. When the S&P 500 falters, VMC tends to find shallow floors. When the S&P 500 goes on a mild uptrend, VMC tends to trade in a fairly tight uptrend as it did in late 2014 and twice in 2015.    Below is a summary spreadsheet for pocket pivots and buyable gap-ups for which we’ve sent out reports since March 1, 2016: This summary spreadsheet demonstrates that taking profits when you have them is critical in this market. An active approach would help to lock in gains since all of these pocket pivots and BGUs have gone higher after we’ve reported on them. However, several have also come apart, and in some cases, as with SWHC, a big breakdown came after a nice 12.52% price gain at its peak price following the initial pocket pivot. That breakdown took SWHC down -18.78% from its original pocket pivot on March 4th. SMCI argues in favor of tight risk control, and demonstrates why junky, smaller stocks tend to carry more risk. After scoring a 4.37% gain after we reported on it, the stock has since dropped -19.36% from its original March 1st pocket pivot. Overall a mixed bag, but if one plays the right names and is willing to take profits when they have them, material upside progress can be made while avoiding some of the breakdowns we’ve seen in names like SWHC and SMCI.