Monday, January 20, 2014

What Can Silvio And A-Rod Tell Us About This Tape?

Just when I thought I was out, they pull me back in:

This market is off to a ragged start for 2014. The more this new year goes on, the less I want to hold overnight positions.  This market is moving by fits and starts and going nowhere. Last week it looked like we were finally getting out of the woods, but the market hit the wall by week's end. Silvio is right so far.

Momentum leaders like CSIQ, YY, GOOG, AOL, JAZZ, YELP exist, but they are the exception and are mostly extended. I would still wait for a dip to buy as long as the market is not correcting. If the market gets whacked I would wait for the market to stabilize and see how these stocks are holding up. So assuming no bear market or bad sell off here are my thoughts:


CSIQ The best of the solar stocks is a bit extended. I would buy on a quick dip.

GOOG No one doubts that GOOG is a great company and that Larry Page is brilliant. They have their hands on every new innovative technology to speak of. Glasses, cars, homes, robotics, etc. Turning these new ideas into money will be an issue. Unlike once great companies that eventually stagnated or died for failure to innovate, GOOG is trying hard to avoid falling into that trap. I think GOOG is extended here.

JAZZ is on fire but extended.

YELP is still on the edge of the buying zone. A small pull back would be helpful.

YY Similar to CSIQ. Buy on a dip.

Former momentum leaders like NFLX & SBUX have fallen by the wayside - at least for now due to institutions locking in capital gains in the new year.

NFLX Its always the same story for NFLX. Can they maintain their lead in online streaming video in the face of competition from AMZN, HULU, some Cable Companies,and possibly AAPL & GOOG? Earnings and guidance are coming out soon and we will get a better idea about what's ahead.

SBUX is probably in the buying zone. I would like to see it build a base and pop to the upside.

Chart setups are always there, but right now the number of setups that actually set off price alerts is rare. If I had to boil it all down to one indicator, the number of set ups that actually work out is probably my best stock market indicator. When my price alerts are constantly going off, that means that the tape is good and there is plenty of opportunity.

Every night I do my homework. I run my chart screens using good old fashioned Metastock. I look for chart patterns that have succeeded for me in the past. That usually means strong relative strength stocks that are in secondary or third bases with defined breakout points. There is usually a story or great earnings growth that goes along with the stock. Furthermore, as a general rule, the more bases a stock has popped from along the way, the less the odds of further success are. Set your price alerts at the highs for all these stocks.

BIIB is a great company, in a great group with other similar stocks like GILD already at new highs

PCLN Great low priced stock - you heard me - with fabulous long term growth, trying to hash out a base.

WX Nice little consolidation for this momentum favorite.

Peter Lynch can show you that many great stocks move for long periods of time - even decades. And he's right. But Peter Lynch was able to live with 30% draw downs in his Magellan Fund portfolio and stick with great stocks for years as they went side ways within their long runs. I do not have his temperament or desire to be a bag holder during bear markets or corrections.

Recent breakouts are not that exciting in terms of momentum:

AOL The dinosaur has turned it around. I would buy on dips. But remember that AOL has already made a big move for several years.

GILD Great biotech stock that recently broke out. A long term champ.

RDN Great turnaround story that recently broke out. I wish it had more momentum.

Are we may be in an Alex Rodriguez economy that is starting to break down after too many QE steroids. Like many athletes on steroids is this market at the twilight of its waning powers? Or, if you will, are new drug free athletes going to take over and do the heavy lifting?  PIMCO's Mohamed El-Erian says that the world in 2014 is better, but not good enough:

In short, earnings Season may be of help, but the year over year comps are getting more and more difficult to meet for old market leaders. And we still face the question of whether the economy can make it on it's own without QE. Is the economic growth decelerating as the Fed weans it off of QE? Recent evidence is of concern but mixed.

My gut is that we are probably in some sort of indecisive transitional phase that will last until we get some clarity about the economy, the Fed and earnings.  This leads me to the conclusion that I must play small or not at all until I see my pitch. And I have to see many more good pitches before I believe in this market. Maybe earnings season will do the trick. Next week some 60 or so companies are reporting. If one is nimble enough, it may be a good time to consider to go long or short or both depending upon the earnings and guidance of individual stocks. 

PS: As a sign of the times, I notice the advent of trading groups like those run by Sykes, Michaud and "Superman" - who's specialty is to promote himself in the social media as a latter day "Wolf of Wall Street," replete with pictures of women, fast cars, yachts, and champagne. Is this guy joking?

In my opinion, they suck many novices in with stories of great success using their methods. I'm sure that guys like Michaud are good day traders. But I am just as certain that he has a racket going. Scalping myopic trades for profits as a day trader is a difficult game that most people fail at. I think that these so called trading groups are milking most of there so called students for huge monthly fees while using them to buy or short the stocks that the pool leaders pick. Thus, creating a self fulfilling prophecy. If one buys or shorts a thinly traded stock and has an entire trading pool behind them, they have literally cornered the market for enough time to scalp a nice gain. Plus they have an on going income stream form subscribers who are looking for an answer. I'll bet that 90% of the subscribers are chasing their tails. some things never change.

BIG Capital Advisors and Seaview Partners arde not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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