MLR - PMP 11/19/14

Published : November 19 2014 at 8:26 ET

Major averages rose yesterday after a string of lackluster days with the NASDAQ Composite hitting highs it hasn't seen since late March 2000. Volume was mixed. Various technical indicators point to a market that could easily correct but distribution days remain scant. The QE-factor tends to distort or render impotent tried-and-true technical and psychological indicators (adv/dec, sentiment, etc) thus price/volume action in leaders and major averages remains key to staying on the right side of the trend.

Semiconductor Avago Technologies (AVGO) had a pocket pivot breakout yesterday. It gapped lower after INTC came out with a weak earnings report, sending the whole semiconductor sector lower in a hurry. But the INTC news weighed the semis down only a short while as shown by the semiconductor ETF SMH which was quick to bounce straight back to new highs, mirroring the major indices. Market context is ever important so despite the V shape of AVGO, its fundamentals remain strong: earnings and sales are strongly accelerating, pretax margin 30%, ROE 27.6%, group rank 28. Nevertheless, this remains a tricky buy since the general market has gone straight up from lows but today finally broke above its sideways price action. But volume remains light, so if one decides to buy at this juncture, conservative investors may want to keep their position size on the lighter side.

Eye and skin care drug manufacturer Allergan (AGN) had a buyable gap up yesterday though closed in the lower half. It is showing strength in today's market. Accelerating earnings and sales, pretax margin 31.1%, group rank 26. Sidebar: ACT bought out AGN which caused yesterday's gap up. Both companies are mega-caps that have performed well. ACT obeys its 200dma so is a slower moving stock but still has been in a fairly clean uptrend since 2012. AGN has been in a somewhat sloppier uptrend but had the sharpest increase in earnings in the last quarter at 45% compared to the same quarter a year ago. The market views the merger as positive based on the last two days' price action, so the question is whether the two companies together can create a synergy that helps keep the current price action clean and strong.

Tesla Motors (TSLA) is gapping down this morning on a rumored downgrade from Morgan Stanley this morning. As a short-sale target TSLA's action during this market rally is not uncommon. With the market in an uptrend the stock continues to push higher as a crowd favorite, but eventually runs out of "gas" as the rally finally peaks on weak volume as TSLA did yesterday, even after skidding slightly past the 50-dma over the past couple of weeks. A break below the 50-dma brings TLSA back into focus as a short-sale target. We currently have a short position in the stock. Sidebar: TSLA is a great, sexy cutting edge story, but the practical reality of these cars has yet to be realized. Charging stations need to be far more plentiful. These cars are a "rich man's toy." Mass adoption is far down the timeline, and competing technologies such as fuel cells can throw TSLA off track at any point along that timeline.

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