MLR - Premarket Pulse May 14, 2013
Stocks barely budged yesterday as volume remained light, giving the market a chance to digest recent gains. Overall, the markets have been acting constructively as a growing number of leading stocks join the rally. Bio-techs are still standing strong as a concentration of leadership as its major component stocks continue to act well.
Biotech stock Pharmacyclics (PCYC) had a pocket pivot in Monday's trade, coming up through its 50-day moving average. PCYC has no earnings but because it is a biotech, this can be excused as it has a number of drugs being developed in its pipeline. Industry group ranking for the biotechs remains top notch at #4, while institutional sponsorship has increased 13 quarters in a row.
3D printing companies Exone Company (XONE), Stratasys (SSYS), and and 3-D Systems (DDD) all performed well after SSYS reported strong earnings before the open on Monday. While SSYS did not hold up on its initial gap-up to issue a buyable gap-up signal, it was still able to recover for a pocket pivot buy point as it held above its 10-day moving average and closed positive on the day. XONE had a buyable gap up yesterday, although it is extended going into today's after-hours earnings announcement. DDD continue to move higher after issues two pocket pivots last week. While those who adhere to base breakouts as their only buy points, DDD's pocket pivots over the past couple of weeks since announcing earnings have allowed VoSI members to get in early, prior to yesterday's all-time high price close for DDD.
While the 3D printing group is hot, XONE comes with the following caveats: 1) It is very thin; 2) it is an IPO so carries more volatility risk; 3) earnings have been negative up until the recent quarter, though some hot IPO stocks that do this can move substantially higher; and 4) sales had been single digits on a quarterly basis but moved into low double digits in its most recent quarter for a 368% gain compared to the same quarter a year ago.
Ambarella (AMBA) is a thin IPO but had a pocket pivot yesterday. Position size with care. Earnings and sales have accelerated and institutional sponsorship has increased since the company came public two quarters ago. AMBA makes semiconductor system-on-a-chip processing units used in cameras and surveillance markets.
The "Amazon.com of Latin America," Mercadolibre (MELI) gapped up on May 7 last week on a strong earnings report and is holding in a tight flag formation. In prior years, its price/volume pattern has been quite volatile and sloppy, but the most recent action on the right hand side of its base has been more orderly. The low of its gap up day incurs about an 6.7% risk if bought at yesterday's closing price. Little to no porosity should be given (porosity is the amount allowed for the stock to undercut the low of its gap up day) as 4 complete days have traded since the gap up, so the 6-day rule on little to no porosity should most likely apply. In other words, if the stock were to undercut the low of its gap up day over the next day, that would be a 6.7% drop from Monday's close so, contextually, that would be a negative, thus the stock should then be sold with little to no porosity.
Tesla Motors (TSLA) remains on fire since its buyable gap-up following earnings last week. TSLA proves that one should not underestimate the power of the buyable gap-up method, a technique that is not advocated anywhere else but on VoSI. TSLA will eventually slow down and build a base at some point, but we do not believe that its price move would be over at that point. While many criticize TSLA taking advantage of government subsidies, we note that the program through which the company received its current subsidies, the Advanced Technologies Vehicle Manufacturing loan program, was signed into law in 2008 by then President George W. Bush. Some of the biggest beneficiaries have been Nissan, which received a $1.6 billion loan, and Ford Motor, which has taken even greater advantage of this loan subsidy program by borrowing $5.9 billion. Ford is often hailed as the American car company that did not require a bailout. Meanwhile, TSLA has announced plans to pay back its $465 million loan ahead of schedule. Recall that solar stocks had a huge price move in 2007, and they were large beneficiaries of government subsidies around the globe. Regardless of what one thinks about government subsidies, the lesson is that one should not allow political opinions to interfere with their ability to capitalize on strong price moves in individual stocks like TSLA.
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