MLR - Premarket Pulse February 15, 2013
General markets were up on higher volume, although they continue to baby-step their way higher with the helpiing hand of QEternity which seems here to stay for the long haul. Here is an excellent article shared by our friend Frederic which explains the history of quantitative easing since 2009: http://www.mcoscillator.com/learning_center/weekly_chart/feds_pomos_keep_market_aloft/
Yesterday the indexes continued to show their resilience in the face of various news events that sent the futures down pre-open. As we discussed in yesterday's Pre-Market Pulse, the pattern has been for the market to shrug off any downside action as buyers step in and provide ready support, and this pattern continues to hold. In our view, the market is continuing to "coil" and in the absence of any downside follow-through this may set off a sharper upside move.
Proto Labs (PRLB) had a buyable gap up in Wednesday's trade after a strong earnings report but it quickly got ahead of itself. Yesterday, it retraced on lower volume relative to yesterday's volume spike. Given the intra-day low of the gap up day of 46.7, if you were to buy a small position here under 50, your maximum risk would be about 6.6%, assuming you gave the stock no room to undercut Wednesday's low. If you bought a position at 49, your risk would drop to 4.7%, again with no porosity. Your risk tolerance levels will determine how much you wish to buy of PRLB and at what price level, assuming you're interest in making a buy. PRLB earnings have skyrocketed while sales have accelerated. PRLB is involved in the hot area of 3D printing area, alongside DDD and SSYS as it makes custom parts for customers who use 3D software to design products.
All of the 3-D printing-related stocks, including PRLB which is only marginally related to 3-D printing, were hit yesterday on a report out by Citron Research calling Three-D Systems (DDD) a "bubble stock." While the report makes some good points, it appears to trivialize what 3-D printing means as a disruptive technology. While one can "print" toys, cups, action figures and other fun things, the disruptive impact of 3-D printing's applications may turn out to be much broader in the industrial area. We recently met with a client/investor of ours who noted that his firm uses 3-D printers to produce detailed architectural models, replacing the old method of using expensive model-makers to construct miniature buildings and landscapes used in such models. As well, DDD has shown materially strong and accelerating earnings and sales growth while selling at 40 times forward estimates. We should remember that Apple (AAPL) sold at 46 times earnings at the time it began its huge price run in October 2004, so on this basis it is difficult to call DDD a "bubble stock" from our perspective. It is interesting that while DDD was the diirect target of this report, the stock rebounded strongly off of its lows, closing mid-bar, while Xone (XONE) and Stratsys (SSYS) closed lower in their daily ranges although they too found support off their lows yesterday. Investors will get a better picture next week when DDD announces earnings.
Michael Kors Holdings (KORS) continues to hold above the intra-day low of its gap-up day of this past Tuesday, and while it is not launching higher as LinkedIn (LNKD) did following its buyable gap-up of last week, it remains viable. We woulld look for the stock to hold the 60.90 level, roughly 2% below the 61.22 intra-day low of Tuesday's gap-up move.
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