This is a good market.
A good market is one in which bad news is repelled like water off a duck’s back.
Stocks took only a single session to digest the ostensibly bad news about the Trump administration’s immigration ban. They then began to rebound, led by the de factoleading index, the Nasdaq Composite COMP, +0.54%
To be sure, it was a matter of time before an administration long on ideas and short on details ran into a put-up-or-shut-up response on the part of global markets.
The dollar’s weakness, which began around the start of the year, may reflect a certain skepticism about whether promises of lower taxes, reduced regulation and mammoth infrastructure spending will boost yields and inflation to the degree that investors have discounted (priced in).
Another negative is the action of some of the liquid glamours, those senior growth names that are beloved by institutional investors for their above-average, recession-resistant earnings growth. Specifically, Facebook FB, -0.02% was hit with selling on the day in which it broke out, while Alphabet GOOGL, +0.23% met the same fate a week after its own breakout.
Bond yields too are off their December highs, with the benchmark 10-year Treasury at 2.47% from 2.62% seven weeks ago. However, this may be normal profit-taking following a scalding advance for most of the fourth quarter.
Meanwhile, Amazon.com AMZN, -0.14% is poised to do the same in Friday’s session.
In light of these cross-currents, what is the market saying exactly?
The above notwithstanding, the two medium-term indicators of import, the price-volume behavior of the major averages and the action of the leading stocks, remain in good shape. (It is to be noted that Facebook and Alphabet are not considered leading stocks.)
The Nasdaq Composite has succumbed to just one day of high-volume selling, also known as distribution. The S&P 500 SPX, +0.73% ? None.
And for the most part, leading issues are showing a good tape.
Overall, then, shares are still poised for upward revaluation, though probably not at the same pace as in November and early December.
Among the names is Alibaba BABA, -0.45% China’s biggest online retailer. The company is another example of a liquid glamour that appeals to large investors due to its expected earnings growth and the ease of building and breaking down positions.
Most analysts expect Alibaba to increase earnings by 33% in the March 2017 fiscal year and 23% in the March 2018 fiscal year. Revenue growth swelled 47% and 44% in the past two quarters, respectively.
Technically, price is forming a four-month, cup-with-low-handle basing pattern. Aggressive speculators might consider using the $104.57 high of its abbreviated handle formation for an entrance.
As always, a protective stop should be used to mitigate risk, along with a starter position that is half, or less, normal size. This initial position could be added to if the stock proves itself. In most cases, a position should not be entered when price is extended, i.e. more than 5% past the top of its base for buys.
Medical-products maker Glaukos GKOS, +1.77% was discussed here in the Jan. 13 column. The stock moved out of a two-week staging area on Tuesday, up 8% on volume nearly triple its daily average. This high degree of share turnover as price moves through a well-defined prior high is exactly what one wants to see. This was then followed by Thursday’s 4% rise on activity 42% more than average.
The key fundamental driving Glaukos’ move higher is likely its expected earnings growth of 83% for 2017, according to most Wall Street analysts. While analysts’ estimates are often wrong, the market usually isn’t. What is important to see, then, is a robust estimate of earnings growth on the order of 25%-plus, coupled with a price-to-volume chart that corroborates it.
Glaukos is currently extended in price above its most recent support level and does not offer an attractive entrance. However, an aggressive player might wish to monitor the stock and attempt to enter on a pullback. Generally, the first pullback after a successful breakout like Glaukos’ makes for an opportune entrance. Thus, anything around $40 or $41 should be considered for entry.
In sum, in light of cross-currents such as a correcting dollar, the administration’s immigration ban, and dubious action among senior growth issues, the market remains in good shape due to the behavior of the major averages and leading stocks.
The trend is up. And it will stay up until it does not. This is the essence of trend-following.
— Kevin Marder
For intraday market comments and stock ideas: https://twitter.com/mardermarket
Earnings estimate data provided by Thomson Reuters.
The views contained herein represent those of Marder Investment Advisors Corp. (“MIAC”). At the time of this writing, of the stocks mentioned in this report, Kevin Marder or MIAC held no positions, though positions are subject to change at any time and without notice.Neither MIAC nor any of its affiliates will be liable, and we accept no liability whatsoever, for any losses any recipient of this report may suffer as a result of his or her or its use of this report or any of its contents.