Tag Archives: kier mcdonough

Market Commentary March 3, 2012

“Trends always go further than rational people expect, or even imagine. In a very uncertain world, perhaps nothing makes more sense than simply following trends.” – John Henry

Market Commentary

Here is an interesting fact that I thought I would share. The S&P 500 closed at 1366 back on Leap Day 2000 (Feb 29, 2000). Last Wednesday, which was also Leap Day (Feb 29, 2012) the S&P 500 closed at 1366. Yes, that is twelve long years and the market is in the same place (excluding dividends of course ) where it was a dozen years earlier.

Here is the chart of this confidence shaking cycle (click to enlarge):

Please note the two corrections of 50% during this time period. Many investors who employed the “buy and hold” strategy experienced more volatility and net worth swings than they could handle. So what do people do alleviate the pain they are experiencing from their portfolio’s – they often sell at the worst possible time, near market lows. Many swear they will never buy another stock or mutual fund ever again. When will they come back to the stock market – when the pain of being in cash is too great to bear. Again, usually at the wrong time- after the market has already had a strong upward move. As Jesse Livermore  once said  about the stock market in Reminiscences of a Stock Operator, “It’s human nature on display”.

I started as a stock broker for E.F Hutton back in 1986. I did not know it a the time, but a tremendous bull mark lie in front of me.

Here is the chart of this wealth building uptrend (click to enlarge):

The S&P 500 closed at 267 on Leap  Day 1988. So  during  that twelve year stretch we saw this Index move from 267 to a high of 1553 in March 2000. That is a move of over 480%. That was a great trend to follow. The buy and hold strategy worked well during that cycle. I do know that at some point we will embark on another multi-year bull market. In sailing terms, the seas will be favorable and the wind will be at our back. The term that is used is a  ” secular bull market ” . This is when real wealth is generated.

Here is a look at the current market (click to enlarge):

We did see a distribution day this week. It was the highest volume day seen since this rally began in late December, coming on the back of a speech by Fed Chief Ben Bernanke.This certainly does not mark the top of the rally, but it does add an additional distribution day on the S&P 500 and on the  NASDAQ. The S&P still has 2 distribution days because January 26th has fallen off after 5 weeks, however, the NASDAQ has now been increased from one to two days.

One chart that is giving me some concern is the Russell 2000. It is showing more weakness that the NASDAQ or the S&P 500.

This index looks like it has more work to do to the downside.

We have seen some leading stocks continue to work. Rackspace hosting -RAX had a nice finish to the week:

The market remains in a confirmed uptrend. A change in trend will occur when sellers begin to overcome buyers. Yes, it is that simple sometimes. The irrefutable law of supply is always in force.

Good luck and good trading,

Kier

Market Commentary Feb. 15, 2012

“Always sell what shows you a loss and keep what shows you a profit”

Jesse Livermore  ~Reminiscences of a Stock Operator

Market Commentary

The quote above is easy to say but not always easy to follow. Our emotions can get in the way of doing what is “right” for our portfolios because of the need to “satisfy” our egos. If you have been a speculator in the capital markets for any length of time you know what I am talking about. It is human nature to do things that feel good (like taking profits) and avoid things that give you pain or discomfort( like taking losses). Taking small profits and leaving losing positions on the books is a recipe for disaster. The best approach is to be patient with winning positions and to be enormously impatient with losers.

The current stock market continues to act in a constructive manner. We have not seen a 1% down day on the major indices yet this year. The last half of 2011 had numerous 1% up and down days and it made for choppy and sloppy action. The NASDAQ, which is the leading index this year, is under strong accumulation. There have been a few professional selling or distribution days of late, but nothing out of the ordinary. Earnings season has been its usual self- full of surprises! I will note that stocks that have beat in 3 ways-earnings, revenue, and guidance -have for the most part been rewarded with higher share prices. These moves seem to be holding up through continued support from institutional buyers.

Rackspace-RAX , reporting earnings on Feb 13th that were up 80% year over year. RAX beat estimates by 20%, reporting higher gross margins, better than expected revenue growth, and raised guidance for the year. That is the “triple play” I referred to above. The stock gapped up to all time new highs on volume that was 6.5 times normal daily volume. RAX is exhibiting the characteristics of a leading stock though it’s excellent sales/earnings growth and price performance. The 9 month consolidation that it just emerged from  could portend higher prices are in store for this leader in cloud technology.

Here is a daily chart of RAX (click to enlarge):

Here is the weekly chart of RAX with a few of my notes:

Many pundits are calling for a market pullback because we are so “overbought”. My take is that the market is entitled to a breather to consolidate the move we have seen since last December’s follow though day -FTD. A 3-5% correction would be rather normal action. This is where we will discover what the true market leaders are because these stocks will go down the least. My goal is try to let my leaders, like RAX,  play out for the big move- as long as the general market trend stays intact.

Market Commentary Feb. 4, 2012

“You miss 100% of the shots you never take.”

~ Wayne Gretzky
Hockey Player

Market Commentary

The US stock market continues to power higher for the 5th week in a row and is now testing the May highs from last year. The NASQAQ, which has been the leading major index, pushed to levels we have not seen in 11 years. The market gapped higher on Friday after the employment figures were much higher than consensus figures and the unemployment rate dropped to 8.3%, which was also better than expectations. We had two strung accumulation( heavy institutional buying) days last week, Wednesday and Friday. There has been little distributional action( heavy institutional selling) during this nascent uptrend. Add to that the number of quality breakouts we have seen and one must conclude that the overall market action is quite constructive.

Overbought indicators are sure to be suggesting that a pullback is in the near future, but a market that remains in a strongly overbought state may simply be telling us how strong it is, and that any low volume selloffs in leading stocks are likely to be continued to bought into. Recent pullbacks have been met with solid buying interest. My goal is not to chase any stocks here that are too far extended from higher probability entry points-no matter how tempting they might be! Normal market reactions, and we are sure to get some in the weeks ahead, will bring many recent issues that have broken out of consolidation areas back to areas where positions can be initiated.

When volume speaks volumes    The weekly chart below is of Storage Technology-STX which had a massive move on huge volume last week (click to enlarge):

STX is the world’s largest provider of hard disk drives and they announced earnings earlier this week. Last fall there were major floods in Thailand which created the most stressful quarter in the history of  the disc drive business. The bottom line is demand is clearly outstripping the available supply of these storage components. STX gave CY2012 revenue guidance was increased by 25%. The street consensus for earnings in this calendar year were at $6.54 and now could be as high as $10-11. The management also wants to buy back up to 25% of the outstanding shares this year. The annual dividend was also bumped to $1.00- that is a yield of over 3.7%. The technical action of the stock last week was powerful. STX gapped up on Wednesday on seven times normal volume and was up over 20% for the day. This breakaway gap was actionable, in my opinion, because the underlying fundamentals of the company changed so dramatically. I have a number of models of past winners that exhibited this kind of power. The big money has been plowing into this name. The stock has been up 22 of the last 25 days and has moved to multi-year highs. The stock is also up 7 weeks in a row and most of those weeks had peak closes. That is a stock under accumulation.

The IPO- initial public offering- market has begun to show some life as well. A solid uptrending market needs fresh merchandise. it also shows that the “animal spirit” is alive in the market.

Here is a  1967 chart of Digital Equipment Corporation, one of the forefathers of the computer industry, as a brand new IPO breaking out of a six week base. The stock ran 900% over the next three years (click to enlarge):

I show this example because every cycle brings new innovative leaders. We have had some great price action out the following new issues: KORS, INVN, UBNT, ZGNA,GWRE

Here is a chart of UBNT (click to enlarge):

UBNT broke out an IPO consolidation last week. Please note the triple digit sales the last 4 quarters. Revenue growth is quite robust as well.

Facebook filed for their IPO last week and fired up buying in technology stocks.

The industry group participation is quite broad as well. We have seen leading stocks break out from the following sectors: technology, biotech, housing, consumer, aerospace,  finance, medical, and energy. Leaders: RAX, V, BEAV,MELI, BIIB, AAPL, HD, LEN ,MNST, MA, ISRG

Last week I did a radio interview on the Tiger Radio Network on Ken Shreve’s  twice-weekly show “Breakout”. Ken and I taught many Investor’s Business Daily workshops together and he is a great student of the market. I am on for ten minutes during the second half of the show. Here is the link if you want to listen:

http://www.tigeruniversity.com/mp3/BOI020212.mp3

We could certainly see some pullback at any time. But, until the distribution days start piling up and current leadership starts breaking down, the evidence points to a trend that should move higher.

Best regards,

Kier

P.S. Go Patriot’s!!

Market Commentary Jan. 30, 2012

” There is no bull side or bear side-only the right side Which side are you on?”

Jesse Livermore ~Reminiscences of a Stock Operator

 

 Market Commentary

The stock market continues to act in constructive manner since the follow through day-FTD on Dec 20th. The NASDAQ and the Russell 2000 are leading the charge, both up about  8%.The S&P 500 is up about 6%. One index that is lagging is the IBD 85/85 Index, which is only up about 3%. This index is still trading below its 200 day moving average. ( about 1% below)I use this index as a proxy for stocks that exhibit superior earnings power and strong relative strength. Better price performance usually occurs when an index is trading above its long term trend line- in this case I am using the 200 day moving average.

Here is a weekly chart of the IBD 85/85 (click to enlarge):

My interpretation of the IBD 85/85  current action is that it has been up 4 weeks in a row( just like the general market) and that the price action has begun to tighten up (i.e. less volatility). Please also note that black squiggly line- the relative strength line- is showing underperformance to the general market and made a new recent low. Solid uptrending markets tend to have a number of “glamour” stocks that lead the market higher. These glamour stocks often times are members of the IBD 85/85 Index. We are right in the middle of earnings season so watch for  big volume breakouts. Apple Inc-AAPL( an IBD 85/85 member) had a huge blow-out quarter last week. The stock had a breakaway gap to new highs on big volume. AAPL beat earnings by 37% and revenue was up 73% for the quarter. Impressive!

My goal is to get “pulled’ into this market. By that I mean, as I make progress (paper profits) I can put more capital to work. Being in-sync with the market is all about trading with the trend.

Good luck and good trading!