MLR - PMP 4/2/14
The major market averages rose yesterday on higher volume with the S&P 500 closing at new highs. This puts the market in a de facto resumption of the rally. With QE at the ready, the major averages may tip toe higher from here as they have before. And many such baby steps over the course of a year with minimal corrections can result in handsome gains for the year. The model remains in cash for now at this turning point as damage done to leading stocks appears on the mend, but could result in a dead cat bounce. Nevertheless, the model is poised to switch should the uptrend continue.
With most formerly leading stocks having been pummeled deep into their patterns, the combination of such an extreme oversold condition combined with the S&P 500 pushing to new highs in a de facto rally resumption could spark further upside as leading stocks bounce sharply off their lows. Our approach here would be to look at purchasing leading stocks which have pulled back to and held their 50-day moving averages as this may be where most of the upside "juice" will be if the rally resumption does not fail quickly. As well, stocks issuing bona fide buy signals such as pocket pivots in the past few days may also offer reasonable buy candidates.
A pair of pocket pivots from yesterday:
Actavis (ACT) - Generic drug maker. Earnings and sales acceleration, group rank 6. Bouncing off 50-day moving average after a gap up on the prior earnings report. Has obeyed its 50-day moving average since Feb 2013.
NXP Semiconductors (NXPI) - Semiconductor. Earnings and sales acceleration, group rank 15, ROE 71.5%. Has obeyed its 50-day moving average since May 2013.
This morning Alliance Fiber Optic (AFOP) is set to gap up. Finisar (FNSR), another leader in the group and a cousin to AFOP has acted well during the market correction, holding up above its recent breakout through the 25 price level throughout. First Solar (FSLR) has held above its 10-day moving average during the correction and should also be watched for a possible continuation pocket pivot off the 10-day line should that occur.
Assuming the market rally is able to continue, the most prudent approach would be to look at buying stocks where a support level and hence an exit point reference is nearby, helping to keep risk as low as possible.
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