The past few sessions have done nothing to improve the fortunes of growth stocks. They remain under the gun, out of favor due to the prospect of higher interest rates and amid rotation into economically-sensitive, value/cyclical issues.
Growth-stock speculators would do well to exercise caution in entering this market from the long side. Very few pattern setups exist, with most falling under the value/cyclical banner. In the meantime, a couple of household name growth titles represent short-selling opportunities.
Among the names, Amazon.com AMZN, +0.47% and Facebook FB, +0.74% the two growth-stock glamours that best fit the mandates of large-stock growth managers due to their expected growth and deep liquidity, remain vulnerable. While they might tempt some speculators on the long side, each has had a big run from earlier in the bull market and should be avoided.
In fact, AMZN, which is experiencing extreme distribution, or focused selling, could possibly be shorted here, using the 792.40 high of Nov. 22 as a place for a protective stop of about 4%. If a half-sized starter position is used, this equates to 2% de facto risk.
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 buys.
In the chart below, 10 distribution days are highlighted in red. This clearly shows institutional liquidation.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
Facebook is much the same story. The social-media juggernaut shows clear selling by large investors as highlighted in the chart below. FB remains vulnerable and is considered potentially shortable at its current level of 116.61. A tight protective stop could be placed just above the Dec. 15 high of 122.50. This represents 5% risk, or 2.5% de facto risk if a half-sized starter position is used.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
Alibaba BABA, +0.99% is another liquid glamour that is normally attractive to large growth-stock managers due to its expected earnings growth rate and its deep liquidity. However, in a market that is shunning large-capitalization growth stocks, it is being methodically liquidated.
BABA is currently extended to the downside, however, and does not represent an attractive entrance for a short-sale.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
Green Plains GPRE, +0.18% was mentioned in the Dec. 21 report: "Aggressive speculators might consider monitoring price to see if it can pull back a bit closer to the 28.37 base top (see chart below) before considering entry."
On Friday, stock of the alternative energy specialist did pull back to within eight cents of the 28.37 base top, where it met with some demand and was last at 28.90. A pullback buy in the form of a half-sized starter position can be purchased around this level. A 10% stop below entrance can be used. While 10% seems like a wide stop, this equates to a de facto stop of 5% due to the half-sized starter position.
Green Plains is not a growth stock but rather a turnaround situation.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
Clovis Oncology CLVS, -5.67% represents an interesting play, albeit with high risk. The maker of cancer treatments is up 287% since bottoming in June following a 90% tumble from its September 2015 high.
While nothing says the stock cannot revisit its prior low of 11.57, the fact that it has already gone through a brutal period of liquidation and is currently under extreme accumulation may indicate the worst is behind it, at least in the medium-term.
Monday's volume of 438% above average turnover sent CLVS up 9%, allowing it to clear the top of a 12-week basing pattern. While it is considered materially extended above the top of this consolidation area, aggressive speculators who like to target names following an outsized selloff might wish to monitor CLVS for a pullback. Any pullback to the top of the base at about 40.30 would represent a more attractive entrance than at present.
Words to the wise: This is a highly speculative play due to it being a development-stage company with no revenue and losses forecast by Wall Street to extend into 2017.
Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.
The hefty, seven-week move in the averages has decimated the population of pattern setups available to the intermediate-term speculator. Growth stocks are decidedly out of favor on the long side, with some offering short-sale possibilities. This is more a time for caution than for an aggressive posture.
Kevin Marder
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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.