Welcome. The contents of this blog comprise my personal observations on the stock market from the perspective of using both fundamental and technical analysis by reviewing market data and stock charts based on the methodologies of William O'Neil of Investors Business Daily and his books, from Stan Weinstein's books, and most of all, through lessons learned over the years by listening to Gary Kaltbaum's "Investor's Edge" radio show on Business Talk Radio.

Criteria of stocks include first researching sectors to determine which are strong and which are weak using the ADX indicator (>40 = increased volatility); focusing in on a leading sector and buying leading stocks on a high volume
breakout (minimum 2x average) above a base; stock prices are higher than $25/share with daily average volume higher than 300K; positive and increasing PVT (indicating institutional ownership), positive and increasing RSI (indicating relative strength compared to other stocks in the market).

Please keep in mind that
I am by no means an expert, nor are my posts intended for anything other than to share my opinions of what stocks are doing for the purpose of getting feedback. Thus, please do your own research before taking action on what you read here. I will be adding posts on topics of interest as I learn about them.

Thursday, May 13, 2010

Latest Hornstein Capital Partners newsletter received on 5/11/10.

Below is the lastest e-mail I received on 5/11/10 from Hornstein Capital, a group I trust. Their address is 53 East 34th street, Suite 207, New York, NY 10016.

from: Hornstein Capital Partners
reply-to: edward@hornsteincapital.com
date: Tue, May 11, 2010 at 8:35 PM
subject: May 11, 2010 Market Update

Last time I wrote about two weeks ago I noted:

"I will have a complete in-depth report this weekend. However, I wanted to put out a quick note to state that odds favor we are embarking on our first intermediate correction since January of this year. Distribution days have now piled up on the major indices, and many leading stocks are about as stretched to the upside as I have seen in ages. In addition, many of the emerging and other world markets are breaking important support levels.

This is certainly not a time to panic if one bought leading stocks correctly and one has low cost bases in these stocks, so long as one is prepared to sit through corrections in leading stocks and new bases being built. However, after playing offense aggressively since the February 11 follow-through day, I am now playing some defense, coming off margin, and raising cash to prepare myself to better sit through corrections.

While there are no guarantees in the stock market, the signs are definitely pointing to an intermediate term correction similar to the one we saw in January of this year. This would be healthy given the run the market has had, and allow proper bases to set up again.

Lastly, the GLD (gold etf), which I discussed in my March 28 market update, looks like it is breaking out and ready to challenge its old highs."

By now the entire world is aware of what transpired last week, as this was the quickest 14 percent correction I have ever witnessed! What amazes me even more is the number of pundits and self-proclaimed experts that have come out claiming to have called the meltdown. Of course, many of these same people have been bearish the entire bull market and never called anything, but that does not stop the many bears to come out of hibernation to claim "I CALLED IT I CALLED IT". The fact is nobody called anything, and while I noted the market's clues that we could begin a correction-- never did I think we would have a day like Thursday! In any event, I will not delve too much into Thursday's action and will leave that to others . Instead, I will focus on the aftermath, and what the market is currently telling us.

First and foremost, the distribution days prior to Thursday's meltdown and the meltdown itself—unequivocally caused damage to the bull market. I would gather that many stocks and sectors have seen their highs for some time, and quite possibly for the bull market. As bull markets mature, more stocks and sectors generally go by the wayside and fewer names will lead the way. When the bull market began in March 2009, one could have thrown a dart at any sector or stock and made huge gains. Some 14 months later, the situation is quite different. Now that the bull market has matured, the tape is more split, as certain sectors and stocks continue to act well while others have probably seen their best days for a long while.

One can think back to the end of the 2003-2007 bull market for an illustration of how this process works. The market suffered a series of corrections in 2007 (February-March 2007 and July-August 2007). While the major indices and leading stocks went higher after those corrections, the corrections themselves damaged the broad market and laid the necessary groundwork for the eventually bear market that followed.

For example, the financial stocks topped out during the February 2007 correction, and the semiconductor sector topped out during the August 2007 correction. Nevertheless, the market powered higher in the fall, and leading stocks continued to show great gains until early November 2007. The later stages of a bull market can be very profitable, as we saw in 2007, and most certainly saw in 2000.

The operative question now is whether we are in the later stages of a bull market -- where we may get another rally or two that is more focused and narrow -- or whether the market is starting to roll over for good. For at least a few reasons, the evidence at hand suggests the former.

First, while a few leading stocks have probably topped for this cycle (i.e.- GMCR and PCLN), a fair amount of leaders have held up extremely well despite the market's carnage over the past few weeks. Indeed, leader BIDU did not even approach its 50-day moving average during the selloff, and hit an all time closing high today. Leader AAPL, managed to close above its ten-week moving average last week, and is sitting a few percentage points off all time highs. Leader NFLX may be forming a rare high-tight flag. Other leading stocks that have consolidated and held up well during the sell off include VMW, CMG, DECK, PRGO, CREE, APKT, NFLX, CSTR ,WYNN, VECO, SNDK, DNDN, and VRX. Simply stated, enough leaders are acting constructively to prevent one from turning too bearish on the market just yet. These leaders will hold the key for the market. Unless they break their lows from last week and come under distribution, they are likely to lead the market higher in the coming weeks.

Second, an astute tape reader will note that after Thursday's sell off, Friday's volume in many leading stocks was HIGHER than the volume seen in these stocks on Thursday, yet the stocks did not undercut Thursday's lows (Many actually held firm). This action can be considered reverse churning, and shows that the institutions came into the market to support these leading stocks (i.e.-BIDU, AAPL, NFLX).

Third, studies of past market cycles demonstrate that markets generally do not go from bull to bear overnight. As I described above, markets usually enter a distributional phase, where some leaders continue to work their way higher, while the market indices build broad tops over time. So, even if we have seen our highs in the indices, it likely will take a few months before the market really cracks for good.

Fourth, the Russell 2000, which is our leading index this year, retook its 50-day moving average. This is a positive development, and may be signaling that the rest of the indices are ready to do the same.

Fifth, various sentiments measures have turned as bearish as we saw during the lows of the last bear market. And, when I see CNBC run a special program entitled "markets in turmoil" it tells me the crowd has definitely turned most bearish. This is a positive development for the market, and has allowed it to work off the bullish sentiment we saw at the highs.

In conclusion, the market has attempted a rally, and a follow-through day in the next few days would signal that the uptrend has resumed. I would not be too concerned with the failure of most of the indices at their 50-day moving averages today, as this is normal given the quick snapback of the past two days. Despite all the negatives we hear every day and a few key stocks coming under distribution, there are still enough leading stocks that have held support to prevent an astute speculator from getting too bearish at this point. A follow-through day, coupled with a few leaders like AAPL BIDU PRGO and NFLX making new highs, would tell us the uptrend is resuming. Of course, if these stocks come under distribution again, and the indices break last Thursday's lows, all bets are off.

Finally, as I noted two weeks ago, the GLD was setting up for a move higher. Today the price of gold, along with gold stocks, broke out on huge volume. Both gold prices, and gold stocks are clearly in bull markets, and look poised to move much higher in the coming months.

This email was sent by Hornstein Capital Partners, 53 East 34th street, Suite 207, New York, NY 10016, using Express Email Marketing.

Tuesday, April 13, 2010

Gil Morales' Newsletter Received on 4/9/10.

Below is the lastest e-mail newsletter I received on 4/9/10 from Gil Morales, another investor I trust. Gil Morales & Company, LLC, can be found at 1925 Century Park East, Suite 1050, Los Angeles, California. More market analysis of the cycle's leading stocks, and Actionable Stock Ideas with specific buy points on their charts, may be found by going to www.GilmoReport.com and subscribing to his twice-weekly updates.

from: Gilmo Report
sender-time: Sent at 10:27 AM (GMT-04:00). Current time there: 11:36 AM. ✆
reply-to: Gilmo Report
date: Fri, Apr 9, 2010 at 10:27 AM
subject: Marder On The Market

April 7, 2010

S&P 500: 1182.44
What, Me Worry!?

“The four most expensive words in investing are ‘This time it’s different.’”

-- Sir John Templeton

The big picture remains that of shares discounting a continued recovery in jobs and incomes for H2, something that the market has been telegraphing for quite some time, all the while confounding the majority. Short-term, the averages look tired. Given that practically none of the individual leaders are offering low-risk entry, a pullback would be a plus for the momentum player as it would create new opportunities in some of the leading lights.

It has been less a case of the market moving up on strong demand than the market rising amid a lack of sellers. The Industrials have not printed a major accumulation day in eight weeks.

[Click for Chart]

As seen above, price has moved sideways for the past 10 days. With that said, there is nothing that says that the market needs to pull back by x% before an overbought posture evens itself out. In other words, expect the unexpected.

By various measures, the market’s level of being technically overbought is rare. For example, the QQQQ has stood above its 10-day moving average for 38 days in a row, the most since the ETF was conceived in early ’99, and well past the previous high of 28 days. We would note that the unexpected is what is worth paying attention to, and in particular, any sort of message that this – the market’s extreme resilience – may be giving. The message is believed to be all about the US economy, i.e. that it will prove stronger in H2 and into ’11 than is commonly expected. By the time this is evident and publicly accepted, further upward revaluation will have taken place.

We have witnessed this many times. The message is never known at the time; this due to the market’s discounting mechanism. And the discounting nature of the market is why general market analysis based on today’s fundamentals alone makes it difficult to stay ahead of the curve and anticipate trends.

Of import has been the buoyant speculative sentiment. One example of this is the slope of the “sentiment curve” since the Feb 5 low as it relates to the performance of an array of securities, each with its own risk factor. So a more conservative issue like the S&P is up 12% since Feb 5, while a step up the risk ladder shows small- and medium-capitalization indices, as well as emerging markets ETFs for China (FXI) and Brazil (EWZ) all in the +17%-to-19% range post-Feb 5. Moving even further up the risk ladder, one passes the Russia ETF (RSX) at +20% since Feb 5. At the top of the ladder sit some of the higher risk names, though with correspondingly higher return potential: the coal (KOL), metals & mining (XME), and steel (SLX) ETFs. These are up 25%-32% since the Feb 5 low.

The above sentiment curve shows that risk-taking is alive and well. This is important because risk-taking goes hand-in-hand with a healthy market. What you want to see are the higher risk segments such as the materials, aggressive growth stocks, recent new issues, etc. perform better than their lower-beta counterparts. If you graphed the securities in the previous paragraph on a chart according to their performance, the slope of the line would be positive. If the slope was negative, the market would be characterized as defensive in nature, and thus, not as healthy.

[Click for Chart]

The above chart of the US small-capitalization market is another reflection of the underlying health of this market. Smaller issues normally peak in advance of the ultimate top in a bull market.

The MSCI Emerging Markets Index ETF (EEM) (below) has been a favorite barometer of the speculative sentiment. It bottomed 3.5 months ahead of the March 2009 beginning of the bull market in US stocks, and actually began outperforming 4.5 months ahead of the March 2009 lows in the US market.

[Click for Chart]

If there has been one concern in this corner, it has been the underperformance of China, which began in late July. The Chinese market has been saddled with investor worries over its overheated property and debt markets, in addition to the Chinese government’s attempt to reign in loan growth. Combine these with other things, including corruption in local government, and China, in our opinion, may well be an accident waiting to happen. Certainly, if there was an asset bubble to be found somewhere, it is more likely to be found here than anywhere else. The good news is that the price behavior for Chinese stocks and materials producers should serve as an early-warning system in advance of anhttps://www.gilmoreport.com/_test/motm/motm040710-05.jpgy dismemberment.

Speaking of which, the iShares FTSE/Xinhua China 25 ETF (FXI) has outperformed the SPX over the last eight days, underscored by similar action in coal, steel, and metal ore producers. As the chart below shows, the price structure of the FXI has lost much of the herky-jerky volatility that it had in the last half of ’09. This, and the two days of major accumulation seen last week, augurs well for a test and eventual breakout of the FXI’s four-month base.

[Click for Chart]

The SPDR Gold Trust ETF (GLD) cleared a technically important level today on fair, but not strong, volume. The view here is that the aggressive momentum player can use a break above the 113.00 level to establish a position, with a 5% stop loss. Longer-term, we continue our long-

[Click for Chart]

standing bullish view on gold due primarily to a belief that the probability of the US government materially reducing its budget deficit is slim – let alone reducing it amid the stiff headwinds of exploding entitlement spending in coming years – as well as an appreciation for history, which has never seen a fiat currency survive.

Within the list, broad sector leadership remains, as it has for some time, in consumer discretionary and industrials, while newcomer financial joins the group.

Among the names, the following are considered among the true leaders in the current cycle, are extended in price and therefore do not offer attractive entry, but may be monitored by the intermediate-term speculator for basing behaviour in the weeks to come: Apple (AAPL), Aruba Networks (ARUN), Baidu (BIDU), Clean Energy Fuels (CLNE), Cree (CREE), Express Scripts (ESRX), F5 Networks (FFIV), Finisar (FNSR), Lincare Holdings (LNCR), Lululemon Athletica (LULU), Mellanox Technologies (MLNX), Mylan (MYL), Netflix (NFLX), Netgear (NTGR), Newport (NEWP), Parexel International (PRXL), Perrigo (PRGO), Priceline.com (PCLN), Salix Pharmaceuticals (SLXP), Veeco Instruments (VECO), and Webmd Health (WBMD).

Mercadolibre (MELI). Worth watching. The Latin American version of eBay (EBAY) is technically under mild distribution as it builds a three-month cup. Of note is its quarterly earnings estimates of 51%, 47%, 32%, 20%, 34%, 23%, 21%, and 26% according to First Call. Revenue forecasts are even stronger. Net margins have strengthened in the past two quarters. The stock is nearly ¾ of the way up the right side of its base after rising from about $8 to $55 in the bull market. Not ready yet, but worth watching.

[Click for Chart]

Brigham Exploration (BEXP). Earnings estimates at this oil & gas explorer for the next eight quarters are among the most explosive in the entire market, with triple-digit percentage increases expected, according to First Call. Revenue estimates are for 42%, 224%, 113%, 136%, 135%, 100%, 79%, and 75%, over this period. Fund sponsorship has increased for the past three quarters. BEXP has gone from $1 to $18 in the bull market, breaking out of a five-week base yesterday on volume 68% above average to stand 1.6% above the top of its base.

Cliffs Natural Resources (CLF). Haplessly extended above the top of its most recent base. Has five quarters of fat earnings and revenue estimates ahead of it before its growth rate is expected to slow down. Fund sponsorship has increased steadily for the past year. Does not offer attractive entry at present, but this producer of iron ore is worth watching due to its expected growth rate, high relative strength, and history of being a leader in the materials sector during ’07-’08.


Generally, we do not pay much attention to traditional measures of sentiment, having learned a few lessons along the way in this regard. (To sum, from a purely intermediate-term perspective, price/volume nicely encapsulates everything.) However, by one indication, there are many doubting Thomases sitting on the sidelines, a plus, as it represents potential fuel for the fire.

This indication occurred in the form of a comment to a column that we wrote a few weeks ago for www.marketwatch.com. Of note was not the comment itself, which disagreed with the tone of the column, the column being similar to what was written in this space just a few days previous. Rather, it was the 41 respondents who agreed with the comment out of the 50 respondents who cast their vote. This meant that 82% disagreed with the bullish posture of the column.

This would appear to be a validation of the retail-is-still-on-the-sidelines-licking-their-wounds-from-the-bear-market notion. If correct, this would seem to dovetail nicely with the economic backdrop’s early-recovery stage, the market’s strong technical underpinnings, and the particular point in the cycle at which shares appear to be.

Translation: The view here is that there is plenty of time left for the retail investor to become enamored with this market before the economy peaks and the bull is ready to retire. Were the bull market to have begun three years ago, leading indicators to have peaked six months ago, leadership to be sparse, interest rate hikes to have mowed down the interest-sensitive sector, speculative sentiment to be shot, breakouts to be failure-prone, etc., the story would be quite different.

In summation, intermediate trend, breadth, and leadership are positive, while volume is neutral and the averages are under short-term distribution. Given the latter, as well as the unusual degree of the averages’ overbought posture, some backing and filling is anticipated in the short term. Not surprisingly, in light of the extended nature of the averages, the intermediate-term speculator is faced with a sea of fundamentally sound stocks that are extended above their most recent bases. Therefore, a pullback in shares would be welcomed, as it would reset the price patterns of many stocks, creating new opportunities and better, lower-risk entries.

In the meantime, several ETFs, including GLD, FXI, and XME, are poised for upward revaluation.

Shares’ care-free “what, me worry?” attitude may strike some as off-base, given high unemployment, the potential for higher rates, sovereign credit risk, and other worries du jour. However, to ignore the market’s technical underpinnings, most of which have been quite positive, is to ignore not only the way the market has actually worked since its inception, but also the four most expensive words in investing.

This time it’s different.

Kevin N. Marder

More market analysis of the cycle's leading stocks, and Actionable Stock Ideas with specific buy points on their charts, may be found by going to www.GilmoReport.com and subscribing to our twice-weekly updates.

Gil Morales & Company, LLC ("GMC"), 1925 Century Park East, Suite 1050, Los Angeles, California. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. 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 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 GMC, its officers, directors, employees, customers, 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. Additional information is available upon written request. ©2008 Gil Morales & Company, LLC. All rights reserved.

Lastest Hornstein Capital Partners newsletter received 4/11/10.

Below is the lastest e-mail I received on 4/11/10 from Hornstein Capital, a group I trust. Their address is 53 East 34th street, Suite 207, New York, NY 10016.

from: Hornstein Capital Partners
reply-to: edward@hornsteincapital.com
date: Sun, Apr 11, 2010 at 8:12 PM
subject: April 11, 2010 Market Update

Last time I wrote, I discussed how the market began a new uptrend on February 11, and had a secondary follow-through day on March 1. I concluded my thoughts by stating:

In summation, keep focusing on the leading stocks of this rally (AAPL, BIDU, CREE, GMCR, PCLN, AMZN, ISRG, PRGO, CLF, NETL, DECK, AKAM) which, for the most part, are the same leaders I continually outlined in 2009. Remember that most growth leaders have a life cycle of 18-24 months before they top, so it is not surprising that the same growth leaders that emerged in March 2009 continue to lead only one year later. Until these stocks show severe distribution on their weekly charts, or enter into climatic runs, the market likely will remain in bull form.

In the past two weeks, the bull market has gained further strength. While the pundits and pontificating talking heads keep clamoring about impending pullbacks, the market has continued to truck higher, with pullbacks lasting a day or two at best. The leading stocks I noted above have continued to lead as AAPL, BIDU, CREE, PCLN, DECK, and AMZN, have all pushed into new closing high ground for the rally. Other leading stocks have progressed as well such as NFLX, CMG, and WYNN. The weekly charts of these leaders show extremely constructive action as they have pulled back (if at all), in a nice tight constructive fashion with low volume, and ramped further on heavy volume. Some of these stocks have shown extreme accumulative behavior, running up for five, six, seven, or more weeks in a row. When a leading stock runs up for this many weeks in a row, it is a tell-tale sign of institutions clamoring to get stock in that leader. Therefore, when we see a bunch of these leaders I outlined exhibiting this behavior, we know with certainty that there is an ample amount of institutional accumulation in the broad market.

I generally do not bother with various popular measures of market demand out there -- such as MACDs, A-D lines, or various oscillators measuring overbought or oversold levels, or any other measure of supply and demand. I have tried most everything, and have concluded that keeping it simple and focusing on mere price and volume of the major indices and leading stocks is the best and most effective method of making money in the stock market. As William O'Neil states in HOW TO MAKE MONEY IN STOCKS:

"At best, the advance-decline line is a secondary indicator of limited value. If you hear commentators or TV market strategists extolling its virtues bullishly or bearishly, they probably haven't done their homework. No secondary measurements can be as accurate as the major market indexes, so you don't want to get confused and overemphasize the vast array of other technical measures that most people use, usually with lackluster results .... Needless to say, I rarely pay attention to overbought/oversold indicators. What you learn from years of experience is usually more important than the opinions and theories of experts using their many different favorite indicators."

However, all bull markets will exhibit corrective behavior from time to time. As I have constantly underscored, trying to guess or time such a pullback is sheer nonsense, and will cause one to lose positioning in a leading stock only to see it go higher. In fact, I tend to ignore any short-term corrective work the market exhibits, unless a plethora of distribution days show up and leading stocks show clear unequivocal topping signs.

I would suggest that given the strength of leaders, and the fact that we are less than two months removed from the follow-through day, that any short-term 3-5 percent corrections that could occur would simply be a buying opportunity in any leaders as they pull back into support.

With earnings season kicking off this week, we now watch the reaction of the leaders I outlined to their earnings reports for further clues of the rally's duration. One stock that reports this week that I would like to discuss is ISRG.

For almost ten months, I have noted in my reports how this stock has exhibited all the characteristics of a market leader. On July 23, 2009, ISRG gapped up out of a base on earnings (with heavy volume), and this began a major bull move for the stock. Those that bought this leader at that time could have easily held this stock throughout the past nine months -- even through the early 2010 correction -- as the stock never broke its ten-week moving average.

This week the stock broke that line (for one single day), as it dropped below there on heavy volume. Contrary to popular opinion, a break of a ten-week moving average is not an automatic sell signal (if only the market were that easy!) Studies of market leaders of yesteryear tell us that leading stocks can live under their ten-week moving averages for 3-4 weeks and this can act as a mere shakeout of the week hands. Leader BIDU exemplifies this principle, as the stock never lived below its ten-week moving average for more than three weeks since the bull market began. It had some hard shakes under that line from time to time, but always managed to regain that important line after quickly dropping below it from time to time.

Those that bought ISRG correctly months ago could have easily withstood the downside action for a few days to see how the stock finished the week. Indeed, the stock reversed on volume later in the week, and formed an extremely bullish shakeout reversal bar on its weekly chart, which also finished a pattern of three out of four weeks tight. This stock looks ready to take off for another big move, and earnings this Thursday will dictate whether it does or not. Anything can and will happen on earnings, but the action at this point is extremely bullish. A gap down on volume on earnings would obviously change that, but until that happens the stock remains a market leader and looks ready to move higher once again.

Finally, for those that missed it, here is the link to my appearance last Thursday on the Investor's Edge Radio Show.

This email was sent by Hornstein Capital Partners, 53 East 34th street, Suite 207, New York, NY 10016, using Express Email Marketing. You were added to this list on 12/1/2008.