MLR - PMP 8/7/13

Published : August 7 2013 at 9:04 ET

Major averages declined on higher volume, marking the fifth distribution day on the NASDAQ Composite. Negative market action was largely due to Federal Reserve official Charles Evans who said the economy should be able to shoulder reduced Fed asset purchases later this year. Evans, who is normally dovish, expects growth in the second half of the year to pick up to an annual rate of 2.5% and climb above 3% next year. The central bank could then taper its asset purchases in several stages, and likely end them by mid-2014. Actual tapering is likely to act as a strong headwind against further progress. The question remains when actual tapering will occur. The counterargument is that a stronger economy is overall good for the market. Such a tug-o-war could result in a choppy market.

Blackstone Group (BX) had a pocket pivot. Earnings and sales jumped in the most recent quarter and institutional sponsorship has grown over the last 4 quarters. We reported on a previous buyable gap-up in the stock in July.

LightintheBox Holdings (LITB) had a buyable gap up. It has had its first positive earnings quarter and sales have been robust. Group rank 10. Keep in mind this is a Chinese stock, an IPO, and is thinly traded, so position size accordingly.

Demandware (DWRE) had a high volume upside reversal pocket pivot after a strong earnings report. Group rank 6. While earnings have been erratic and mostly negative, and sales have been slowing, the company has a big edge as a developer of on-demand software for developing e-commerce websites. It has helped a number of companies including one in China rapidly establish their online presence.

Michael Kors Holdings (KORS) gapped up on strong earnings then filled its gap so technically negated its BGU. That said, since it closed in the top half of range on this huge volume, it could be considered actionable given its fundamentals - earnings and sales remain powerful, institutional sponsorship continues to grow in every quarter since the company went public, and return on equity is a towering 52.9% and pretax margin is a strong 28.7%. Note, market weakness earlier in the day caused KORS to fill its gap. This is another illustration where market context is important.

NationStar Mortgage Holdings (NSM) had a buyable gap up after reporting strong earnings. As with KORS, NSM also filled its gap. It retraced back to its 10-day moving average then closed about midbar in the face of market weakness. Such action can be considered positive and illustrative of how a BGU can morph into a pocket pivot on an intra-day basis. NSM earnings and sales have strongly accelerated and both are in the triple digit percentage returns quarter over quarter.

Exone Company (XONE) traded enough volume for a low quality pocket pivot. This group has been volatile and strong, but the action in other leading stocks such as SSYS and DDD place the pocket pivot in XONE at higher risk, especially given the price/volume action since XONE hit a high. You dont want to see a wedging pattern where higher highs and higher lows are made. It would be better to see some sort of shake out then a pocket pivot in the ensuing days.

For categorization/archival purposes, BX and DWRE will be sent out as a separate PPR report, and LITB as a separate BGU report.

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