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While the major averages have rebounded over the past week and a half, some of the speculative growth-stock glamours remain down for the count. The overall theme shows a rotation out of the speculatives and into the liquid glamours such as Alphabet GOOGL, +0.27% GOOG, +0.00% and Facebook FB, +1.23%
This behavior is to be expected in a mature bull market, where the speculative sentiment peaks and is replaced by a rotation into larger titles at the expense of smaller names.
It should be noted that this is not yet happening en masse. The small-stock Russell 2000 RUT, -0.20% shows some decay relative to the S&P 500 SPX, -0.31% but is not completely falling apart (see chart below). Too, of the growth-stock leaders, about half remain buoyant, while the other half have suffered from technical breakdowns.
For a larger chart, please click here.
Chart created using TradeStation. ©TradeStation Technologies, 2001-2016. All rights reserved.
Within the small-stock universe, the fading speculative sentiment is reflected by a notable rotation out of growth and into value, as the chart below shows.
For a larger chart, please click here.
Chart created using TradeStation. ©TradeStation Technologies, 2001-2016. All rights reserved.
The Nasdaq Composite itself is benefiting by a distinct preference for large-capitalization technology including Microsoft MSFT, -0.38% Texas Instruments TXN, +0.10% and Adobe ADBE, +0.50% according to the chart of the Nasdaq 100 below.
For a larger chart, please click here.
Chart created using TradeStation. ©TradeStation Technologies, 2001-2016. All rights reserved.
In light of the dichotomous look to the recent speculative leaders, an aggressive player in these titles should consider reducing long exposure if he hasn't already.
Among the names, Exact Sciences EXAS, +1.38% is a biotech issue that has been drenched in red ink for years. With Wall Street predicting more of the same, the stock nonetheless went from five-ish to 22-and-change in about five months. Its O'Neil relative strength rank is in the 99th percentile over the last year.
Price is currently forming a 10-week consolidation. Aggressive operators might consider taking EXAS on a break above the Sept. 22 high of 22.21.
As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. 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 a larger chart, please click here.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
After going public two-and-a-half years ago at 15.00, Paycom Software PAYC, +1.95% is comfortably perched in the low 50.00s. The developer of human-capital-management software should earn 93% more this year than in 2015, according to most analysts on Wall Street. Another 25% earnings growth is expected in 2017.
Revenue growth has been an impressive 63% and 51%, respectively, in the two most recent quarters. The stock is ranked in the 92nd percentile for relative strength over the past year, while its industry group is in the 94th percentile for the last six months.
After gaining about 140% from its February low of about 22.00 to its recent high of 52.93, the shares are building a seven-week flat base. The two-day spurt of last Friday-Monday saw the stock move up 7.6%. Volume in the two sessions was 48% and 159% above average, respectfully.
Aggressive speculators might consider using the 52.93 high of the base as a possible entrance pivot for a breakout play. Earnings are expected on Nov. 1.
For a larger chart, please click here.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
Sina SINA, -2.39% is one of the better actors of the current cycle following its August breakout from a long basing pattern. After rising 56% in just five weeks, price has been basing in encouraging fashion for the last seven weeks.
The thesis here is a) an earnings turnaround that should show 22% earnings growth this year and another 81% next year, if most analysts are correct, and b) the aforementioned powerful move accompanied by just a smatter of profit-taking in its wake.
Aggressive players might target the swing high of 80.42 set three weeks ago as a cheater entrance pivot. An alternative pivot might be found on a pullback to the 50-day moving average line, where demand has emerged on a few occasions during the past fortnight.
For a larger chart, please click here.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
The Nasdaq Composite holds up reasonably well, thanks to its large technology component which allows it to outperform the S&P 500. The advance in the leading speculative growth-stock glamours has narrowed, reducing the probability of successful speculation. An active market operator should consider reducing long exposure in this environment.
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 and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. 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.
