Right now, shares are sitting in a miniature, four-day trading range of sorts. Breadth is extensive, and is the most notable technical of this advance. A broad advance is an advance with a high level of conviction, especially one in which small-capitalization titles have led, as has this one.
Assuming the economy continues to expand through the end of the year, the market could go substantially higher. A possible scenario. Not a forecast. And even then, there would be one or more intermediate-term corrections along the way. Any of those corrections could end up being the beginning of a new bear market. They don't ring a bell at the top.
While possible scenarios enter many a speculator's mind, speculation based on such thoughts are not only sub-optimal, but can be hazardous. This occurs when one's thesis plays out wrong, but one refuses to admit being wrong. Yet there is nothing intellectual about trading. Remaining in synch with the trend � no matter one's personal feelings � is the best assurance of participating in bull markets and protecting precious capital in bear markets by sitting in cash.
There are no crystal balls. Anyone willing to devote some time and effort can learn to select winning stocks. Amy Smith's new book, How To Make Money In Stocks: Success Stories, contains the stories of dozens of ordinary, everyday people with ordinary, everyday names like Barbara, Mike, and Charles, who became winning investors. Fanfare for the common man.
Of course, there are many strategies, and the one discussed in these reports is just one. It is a good fit for many, but certainly not everyone.
Otherwise, earnings season always poses a dilemma for a speculator. In olden times, this was not an issue, as it took days sometimes for news to reach all pockets of the market. The advent of modern-day communications, including sites such as this one, means everyone gets the news at the same time, figuratively speaking. There is no perfect solution.
One idea discussed in Tuesday's report involved taking a partial position in a name that is at an attractive entry point. Unless one wants to get into hedging, there is no real solution to "gap risk" caused by a negative earnings surprise. Glamour titles will be more susceptible to surprises than other issues due to their richer multiples.
This is part of the higher risk in playing with glamours. During certain earnings seasons, it is de rigueur when holding a portfolio of such titles to be sitting with two or three such trapdoor names. Trimming positions ahead of an earnings release makes the most sense sans hedging.
Among the names, 3-D Systems DDD has turned in three accumulation days in a row. Wednesday's move was +8% on volume 87% above average. Normally, the first few days up after a selling climax are on lower volume. What is interesting with DDD is that volume is beefy at a time when it should not be. The unexpected. This adds to the possibility that the stock may make a complete recovery from last week's episode of institutional dumping. V-bottoms, however, generally do not keep the crowd honest enough to shake their faith in a name.
Neither hide nor hair of Invensense INVN has been seen here in eight months. The maker of ICs and software for consumer-electronics devices came public in November 2011 at 7.50. After doubling in its first four months, the stock has been building a long base. Most analysts eye earnings growth of 23%/29% for the March '13/'14 fiscal year.
While a good ways from its high of 22.35, INVN is under extreme accumulation by institutions. It stands a stone's throw from its nine-month high set Jan. 28 at 15.26. Aggressive speculators can consider entering on a takeout of this level, with a standard stop loss of 5%-7% below entry. Liquidity is not bad at $20 million in volume per day. At the same time, any stock that is a teenager represents higher risk.
Elsewhere, Lumber Liquidators LL looks increasingly pregnant as it sits near the top of its substantial base, with earnings expected out later in the month. Medivation MDVN , the biotech, is also comfortably perched in its own base. Earnings are also due out in late-February.
Five Below FIVE , the teen-centered discount retailer with earnings growth expected to be 40% in the January '14 fiscal year, is making noises that it wants to come out. It is under extreme accumulation.
In summation, the averages act well in what is a fairly broad advance, the type that does not typically end on a dime. The turbulence that has taken down some of the builders has not spread to many other leadership names besides the 3-D printers. While an 8%-12% intermediate-term correction could occur at any time, the best course of action is to focus on what the averages and leaders are currently doing.
So far, so good.
Kevin Marder
Charts created using TradeStation. �TradeStation Technologies, 2001-2013. All rights reserved. All mutual fund ownership and earnings estimate data provided by Thomson Reuters.
At the time of this writing, of the stocks mentioned in this report, Kevin Marder or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. The information contained herein may have been previously disseminated.
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