The Dow made a higher closing high yesterday, marking a de facto resumption of its 15-week rally off of its November lows, although it did so on lower volume. The rest of the major market averages also rallied on what was lower volume all around. So far, the indexes still remain in position for a follow-through day given that they are in what is so far a five-day rebound and rally attempt off the lows of last Tuesday. Confirmation of the Dow's higher high in the form of a strong-volume follow-through day would be a positive sign for the bulls, but the market has shown a tendency at times to "melt" to the upside on low volume during the QE environment of recent years. This "melt up" phenomenon is on display again this morning as the futures imply a move to higher-highs today.
In some cases, it may be better to play things on a stock-by-stock basis rather than focusing on the volatile action of the indexes. For example, LinkedIn (LNKD) had a continuation pocket pivot buy point four trading days ago, which we reported on at that time, and the stock has continued to move higher. Five Below (FIVE) and Celgene (CELG) have also achieved and held recent breakouts, while big-stock NASDAQ name Google (GOOG) surprises the skeptics by moving up through the $800 price level in a convincing demonstration of the famed trader Jesse Livermore's "Century Mark Rule" as he explained in "Reminiscences of a Stock Operator," by Edwin Lefevre.
Meanwhile Apple (AAPL) continued to move lower following Friday's downside "breakout" and appears headed for the top of a prior base it formed in late 2011, roughly around the 409-410 price area. Our longer-term downside target remains 360, roughly around the lows of the base it formed in late 2011. Look for AAPL to approach the 410 level before attempting a more concerted bounce, although in any case we would use the 430 level, at the very least, as our maximum upside trailing stop. Should the market follow-through a bounce would certain be more likely, and AAPL short-sellers should remain flexible in response to any potential movement in the stock over the coming days.
Alexion Pharmaceticals (ALXN) has pushed right up to the 90 resistance level, but should the general market contiue to move highery the stock could push higher towards its 50-day moving average at 93.54. When and where it fails, assuming it does, will likely depend on the general market and whether it rolls over or continues to rally. The difference between AAPL and ALXN is that AAPL is far more firmly encsonced in a well-defined downtrend some 40% off of its all-time high, while ALXN is 24% off of its own all-time high. AAPL also has a much lower 10 P/E ratio compared to ALXN's P/E of 30, which tells you that the market places far less value on AAPL's forward earnings stream.
This is a tricky environment, and in such an environment one might consider playing things on a stock-by-stock basis according to their own risk-preferences. Without a follow-through day, taking aggressive long positions may be more risky, but the situation remains highly fluid and one should simply react to the evidence at hand without taking a rigid bullish or bearish stance.