MLR - PMP 1/9/15
The major market averages shot higher yesterday on higher volume. All of the indexes moved sharply above their 50-day moving averages, a constructive sign. In addition, a number of pocket pivots and buyable gap ups surfaced showing internal strength in the markets. Futures were up at the time of this writing in response to a rather benign non-farm payrolls number that came in at 252,000 jobs vs. estimates of 240,000. The unemployment rate ticked lower to 5.6%. The Market Direction Model, which went to a buy yesterday near the open, remains on its signal.
Drug maker Valeant Pharmaceuticals (VRX) had a buyable gap up breakout. Earnings are accelerating, group rank 24, pretax margin 36.6%, ROE 46.3%.
Semiconductor Avago Technologies (AVGO) had a pocket pivot. AVGO had undercut its gap up on 12/4/14 then redeemed itself. Earnings and sales are strongly accelerating, pretax margin 33.4%, ROE 43.8%, group rank 8.
Online order take-out service GrubHub (GRUB) had a pocket pivot yesterday, it's fifth over the past six days in a row. Earnings and sales are skyrocketing, institutional sponsorship has increased all 3 quarters since the company went public, group rank 48. One caveat is that the company has yet to double in price from its IPO price of 26. We generally prefer to see strong action earlier on such that the stock has at least doubled in price before buying as most winning stocks share this characteristic, unless the stock has only been trading for a few weeks in a weak market environment. That said, GRUB has had 5 pocket pivots out of the last 6 days despite a weak market. We own a position in this stock.
Security software company Barrracuda Networks (CUDA) had a buyable gap up on Wednesday. The stock digested gains and became actionable on Thursday. Earnings are skyrocketing, group rank 1.
Semiconductor Ambarella (AMBA) had a pocket pivot Tuesday but during a weak market environment. Wednesday's market behaved better, thus Thursday's pullback in AMBA was constructive as it was on lighter volume. So given the overall tone of the Thursday's market, AMBA was actionable. Earnings and sales are accelerating, pretax margin 23.1%, group rank 8.
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