MLR - PMP 8/8/13
Major averages finished lower on mixed volume. While the number of distribution days on the NASDAQ Composite has climbed to 6, quantitative easing is a factor that has kept the model on a buy signal for now. We discussed this in prior reports including the most recent one here: https://www.virtueofselfishinvesting.com/reports/view/mdm-qe-perspective. The question is whether the Fed will start to taper its $85 billion-a-month in QE when it meets in September. So far, economic data have been mixed. So while we could get a market pullback in here, market action since QE began in 2009 shows pullbacks are generally contained to within 10-11%. The model may decide, however, to make a quick exit as discussed below since market averages are only 1 to 2% off their peaks.
Leading stocks such as Nu Skin (NUS), Evercore Partners (EVR), Tesla Motors (TSLA), and Santarus (SNTS) continue to act okay overall despite issues in the solar group. That does not mean trading these stocks has been easy, however, as steep temporary selloffs have often been the case this year and last.
Tesla Motors (TSLA) gapped higher by 14% in after hours trading after a strong earnings report, beating revenue estimates. It is currently up 15% in premarket trading. TSLA has been the leader of leading stocks in the current cycle. TSLA has only been climbing for a brief while, up about 275% from its breakout if it opens at 150. Thus, today's gap up is a buyable gap up since the best leaders in any cycle are generally up several hundred percent or more. If you sold some or all before earnings, you can buy back part or all of your position, using the BGU sell rules we have outlined in the FAQs and keeping in mind your risk tolerance levels. That TSLA is gapping up on a strong earnings report bodes well for a possible continuation of uptrend in tech-heavy indices such as the NASDAQ Composite. And since major indices correlate fairly well, this bodes well for the rest of the market. That said, if today's gap up in the major indices cannot hold or selling accelerates in major indices and leading stocks, both models may decide to make a quick exit to cash or sell.
Solar stocks got clocked after First Solar (FSLR) had a disappointing earnings report. Solar City (SCTY) then gapped down in after hours trading also on a weak earnings report.
Santarus (SNTS) had a buyable gap up on a strong earnings report. Earnings and sales have skyrocketed over the last several quarters, institutional sponsorship has grown over the last 8 quarters, group rank 32. We reported on SNTS in prior reports.
Jazz Pharmaceuticals (JAZZ) had a pocket pivot after trading down to its 10-day moving average then finishing near the top of its trading range to finish positive for the day. The market had a tug-o-war over its earnings report which came out after Tuesday's close and was decidedly won by the bulls. JAZZ has had strange, volatile market action in the past such as on 11/9/12, but action so far this year has been relatively normal, thus it is actionable. Institutional sponsorship has climbed 17 quarters in a row, ROE is 44.2%, pretax margins 52.3%, and earnings and sales remain robust. Group rank 32.
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