Shares remain hewed to a tight upward channel as earnings season is the dominant focus. This Friday's release of both ISM and employment report should provide plenty of fireworks.
Technically, on Thursday the Nasdaq put in its first distribution day in nine weeks.
The most interesting phenomenon over the past week has been the correction put in by lumber futures. While there may not be a 1:1 correlation, there is some relationship between the cost of wood and housing-related issues. Both the commodity and stocks have had good moves. The stocks deserve careful watching.
Among the names, Linkedin LNKD is a rare breed, a company growing at piping-hot speeds, yet of the size that institutions can put meaningful amounts to work. Market capitalization is $14 billion and average daily volume of $211 million. Most analysts see '12 and '13 earnings growth of 106% and 82%, respectively.
LNKD was noted in the Jan. 15 report ("... should eventually attempt a run to its old high...The old high of 125.50 set Sept. 14 would represent a potentially attractive entry . "). Monday, the stock rose on volume 56% above its 50-day average. The move represented the breakout of a four-month base.
Coupled with the 55% jump in volume above its average daily volume on Jan. 10, LNKD is shown before its earnings release, expected out on Feb. 7, after the close.
Trafficking in glamour issues carries its own risk in earnings season. A speculator should know in advance of the report exactly how much he or she can afford to lose in the event of a negative surprise.
As an example, holding a position that comprises 10% of a portfolio would suffer a 2.5% hit to the portfolio if the position dropped 25% on the announcement of earnings.
While stocks have been known to drop much more than 25% on an earnings announcement (Crox gapped down 28% in '07 on earnings), most medium- and large-capitalization titles do not exceed this amount on the day when earnings are announced.
This participant early on learned the risk of having a concentrated portfolio of younger glamours. In '93, his account was fully invested in three positions, all aggressive, young names. One stock, a technology issue, was purchased coming out of a base at 22, whereupon it rose over the next three weeks to 24.
Then on one day the stock did not open for the first two hours of trading. This was either a very good sign or a very bad sign. Two-and-a-half hours into the session, the stock opened. At 7! The SEC had announced an indictment against the CEO, CFO and a third executive for cooking the books. The stock was sold later that day at 6.
What turned out to be a 25% hit to the account (75% drop on a 33% position) ended up being a good lesson in concentrated position sizes in small-capitalization shares.
MDC Holdings MDC is a builder that specializes in homes for first-time/move-up buyers. Earnings in '13 are expected to be 47% more than that of '12. Technically, the stock has not been as dynamic of a performer as other building shares like Pulte Group, Ryland, and MI Homes. It is closing in on the top of its three-month base. Volume Monday was 79% above normal.
Earnings are expected Jan. 31 before the market opens. An initial starter position could be initiated above the Nov. 1 high of 42.22, with a protective stop just below the 40 level.
No comments:
Post a Comment