Klein Market Summary – April 1st, 2013

Klein Market Summary

April 1st, 2013

 

Current Market Facts:

Technical Status

 Confirmed Rally Beginning Week 14
   

Other Observations

Markets ended the quarter under accumulation

Several fresh breakouts have fueled additional market upside

   

Feel of the Market

Broad accumulation continues to dominate market action
   

Important Levels on Key Indices:

Index

Support

Last Close

Resistance

Nasdaq

3213

3267

3300

Nasdaq 100

2812

2819

2878

S&P 500

1538

1569

1575

 DJIA

14383

14579

15000

Market Interpretation:

The first quarter was marked by several themes: topping action in bonds  as seen in TLT, a continued breakdown in AAPL, a powerful rally with broad stock market leadership, and political status quo in the U.S.  GDP has continued to grow slowly.  The rally continues for now, as the S&P 500 pushes all-time highs.   Looking ahead, there are many stocks that have just broken out or are about to.  Some former leaders have risen to the front of the leadership: GMCR and NFLX.

Joel’s Take:

I would like to underscore my approach the market, and some of my reasons for it.  First, I want to invest the way that I will eventually need to.  For example, I can’t trade thin stocks because if I am successful, I won’t be able to repeat.  Thus, my approximate liquidity threshold is $100 Million Average Daily Dollar Volume (100 M $V).  Second, I rely heavily on repeating historic chart patterns, and ones that I have proven that I am able to trade successfully.  Finally, I am as strict as I can possibly be in controlling risk, especially in adverse market environments.

I want to comment on a stock that has caught my attention because it is one that I have been successful with in the past.  My observations on the stock are not to be construed as advice, but as data interpretation.  The stock is NFLX.  Though the earnings have not reaccellerated, its technical action is unsurpassed.  NFLX is one of those stocks that people seem to either love or hate.  It has a ridiculous valuation that is pricing in enormous earnings acceleration.

At first glance, NFLX seems overpriced, because it had an enormous uptrend, and has not retraced a significant amount.  From January 20th, it rose 90% in 18 days, and since, has only corrected 11%.  Unusually powerful stock action.  Not only has the stock levitated, and held its gains, but the price volume action shows a clear lack of net selling or Distribution.

NFLX is somewhat unusual for a large cap, because it only has 53 Million shares in its very tight float.  Also, according to the most recent filings, 33.4 million shares are owned by institutions.  This does not include institutions that don’t report their positions and individuals.  As of March 15th, the stock had a total of 8.6 million shares sold short.  My point in laying out this data is that NFLX seems to be cornered.

With a huge uptrend, no real pullback, and NFLX remaining under professional institutional Accumulation, in a robust stock market rally, the only Bearish argument is that the stock is trading at a high valuation.  That opinion is like saying that quarterback Joe Flacco’s $121 million dollar contract is too high.  Because both stock prices and athletic salaries are auction markets where supply and demand set the price levels, these valuation arguments ignore supply and demand.  Great opportunities cost more than others.  The Bullish arguments for NFLX seem to be escalating subscriber growth, a takeover target, developing original content, earnings recovery, and the Disney contract.

We recognize the pattern as a High Tight Flag.  It is the pattern that represents ultimate strength in the market.  When a stock moves like this, it is often because the fundamental facts of the stock have changed.  Stock market history is replete with stocks that skyrocketed after their fundamental facts radically changed: BS in 1915, SYN 1963, ROL 1963, QCOM 1999, TASR 2003, MA 2006, AAPL 2004, etc.

Assuming that the NFLX pattern is correct and it stages a proper breakout, a stock like NFLX historically only occurs about every 2 years.  The data suggest that NFLX can go much higher near-term.  This commentary is not meant to be advice of any sort.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.
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About kleinmarketforum

Klein Asset Management, LLC, formed in 2003, serves individual investors via a directional growth stock approach. When the market is in an uptrend, the firm seeks to exploit investment opportunities. When the trend is down or neutral, assets are protected. Klein Asset Management undertakes major market research projects. In many cases, these result in improved investment methods, which ultimately improve performance.

2 responses to “Klein Market Summary – April 1st, 2013”

  1. Deepali says :

    Thanks, Very nice summery…

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