MLR - PMP 9/4/13
The major market averages rose on higher volume, due mostly to the fact that Friday's pre-Labor Day hoiday weekend was light and well below-average. After gapping sharply higher, the index rally fizzled and stalled out as investors sold into the move. The Syrian issue still hangs in the balance, but once action does take place, there is the possibility that the market could respond bullishly. However, last night a deal was worked out in the Senate that would give the Obama Administration authorization for up to 60 days of military action against Syria. Tuesday's action was tentative at best, and with major averages in a downtrend, the markets may be telegraphing other troubles on the horizon such as the slowing of quantitative easing, and yesterday's strong ISM number put this back on the table. QE has arguably propped markets higher since 2009 so any slowing may be more bearish for the markets than the bullish action the global economic recovery would bring. Bernanke is aware of this, but may have painted himself into a corner. Thus, too little tapering risks runaway inflation while too great a tapering risks popping the QE bubble. Unfortunately, in this Goldilocks tale of monetary manipulation, there is perhaps no baby bear soft landing. Price/volume action will be our guide as always.
Ocwen Financial (OCN) had a pocket pivot yesterday although it stalled and closed mid-range on heavy volume. We last reported on OCN's pocket pivot of August 26th, after which it failed and moved lower. The market direction model has been in cash, so we have advised to position size accordingly if one chooses to buy into pocket pivots or buyable gap-ups in this environment. If you bought OCN on 8/26 then got whipped out the next day when it undercut the lows of its 2 week base, you could theoretically buy the position back on the basis of yesterday's pocket pivot. Alternatively, if you didn't sell, then you could take yesterday's pocket pivot as positive action.
LinkedIn (LNKD) traded enough volume yesterday for a pocket pivot, but after-hours announced a shelf-filing for a secondary offering of stock, which has sent the stock back down towards the 240 price level. In this environment, as we've said, there is heightened risk so position size accordingly or remain in cash.
Pharmacyclics (PCYC) traded just enough volume yesterday for a pocket pivot. We have reported on PCYC before, with the latest report being on August 26. PCYC with group rank 4 has erratic earnings but is a biotechnology company so this can be forgiven as institutional sponsorship has grown over the last 14 quarters, pretax margin 59.3%, ROE 86%, and soaring sales.
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