MLR - Premarket Pulse May 21, 2013
The market slowed down a bit yesterday as the indexes pulled in slightly on lighter volume following Friday's options expiration, but remains within its tight and steep uptrend channel as it has throughout the month of May, the month during which investors are allegedly urged to sell and "go away." Of course, relying on inaccurate aphorisms is not an investment strategy and ignores the fact that price/volume action is always your primary point of reference with respect to when exactly one should "sell and go away."
In fact, we can remember quite distinctly buying a stock known as C-Cube Microsystems (CUBE) at around $22 in May of 1995 and watching it go above $90 by October of 1995, or buying Amazon.com (AMZN) in 2003 and watching it rise from $34 to just over $60 from May to October 2003. Fortunately, during those periods we did not heed the tired, silly aphorism that one should "Sell in May and go away."
In terms of actionable buy points on stocks we have reported, we keep an eye on Tesla Motors (TSLA) as it attempts to build some sort of consolidation here. We would like to see the 10-day moving average come up to meet the stock as it forms perhaps a flag formation, as this could set up a pocket pivot type of move off the 10-day line should that occur. For now, we note that the stock has started to pull back a bit, and did so yesterday on volume that is beginning to dry up. We would look for such a pullback to continue in a constructive manner. It is interesting to note that page 14 of "How to Make Money in Stocks," the latest edition with the orange cover. shows a chart of General Motors (GM) in 1915 when it broke out of a 2.5 year IPO base and had a massive upside launch and streak to the upside as it broke out of this base, not unlike TSLA's recent move over the past month or so. GM's 1915 chart does indicate, however, that one should not consider such a strong move to be "climactic," although the jury is still out on TSLA. Nevertheless, the market is always about possibilities, and we consider TSLA an interesting situation that bears watching.
Institutional buying and covering of gold in yesterday's trade resulted in a strong one-day bounce. After relatively massive amounts of quantitative easing in Japan, the country mentioned the possibility of a reversal in the yen, thus Japanese bonds reacted negatively. This could create issues for the Japanese government who uses bond issuance to fund its activities. That said, a lower yen means higher inflation which is good for gold. While QE is still in full force across central banks, this one-day bounce in gold may be just that. Gold is currently trading lower in the premarket.
With the major market indexes appearing to be in such an "extended" position, a pullback is certainly always a possibility, but the critical factor will be the behavior of leading stocks, and it is there that one should focus their attention in the event of a market pullback that might occur at any time.
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