– The Stock Market Companion –

15Minute Market Update

May 27, 2013

—— Stock Market Investing since the 1980’s ——

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-Executive Summary-

• Weekly U.S. Stock Market Results = S&P 500 ETF (SPY) -1.85 pts. (-1.1%), DOW -51 pts. (-.33%), NASDAQ -41 pts. (-1.2%)
  

    

• Markets – The markets have at least “paused” from what has been a very aggressive rally off recent (November 16, 2013) lows.  Wednesday, May 22nd, marks a Gap-UP, downside reversal on HIGH volume.  This has real significance as an intermediate market top The volume was the highest volume since February, and almost the highest volume day since the rally began on Nov. 16th.
  

  A Gap-UP, downside reversal has these characteristics –
  

• The background market (DOW; S&P; or NASDAQ) opens “higher” than the previous day’s close = Gap UP.

• Early morning buyers press the market aggressively higher, pushing those who have repeatedly tried to guess the market and short the market to cover their positions in despair.

• The market is pressed into new high territory, but there are no new buyers to be found – besides those who are covering their losing short positions.  Market participants sense that there are no new buyers, and begin selling their positions aggressively.  The market sinks back to break-even for the day and renewed, aggressive selling pushes the market down – below the opening price = Downside Reversal.

• Wednesday’s Gap-UP Downside reversal was marked by a close, well below the previous two day’s ranges.  This gives us the signal of an intermediate or – at least a short term top in the market.

   

   

• The old market adage, “Sell in May and go away” appears to be playing out this year.
  

  
  

• Those who believe that the U.S. equity markets have room to decline a bit, in an orderly retracement fashion – due to the aggressive run-up since November – and who are  interested in a possible+10% increase in value in an investment that increases in value as the market declines, may wish to consider an investment vehicle like the Rydex Ultra-Short S&P 500 Fund (Ticker: SDS  $39.15).  The fund is designed to increase in value at a rate of 2x the percent of downside movement in the underlying S&P 500.  It is therefore called a “geared” or “leveraged” fund.
  

   

• Our J.C. Penney stock idea (JCP $18.98) increased +11.6%.  Ideas like this must prove themselves when the market reverses.  For us, “proving themselves” means simply getting very quiet and not giving up much ground.
  
  

  Here’s how it we announced it … “From early in May … “We continue to like very much J.C. Penney stock.   “Here’s a new idea = JC Penney stock.  Ticker = JCP ($17/share).  The shares were $43/share in February 2012.  The company has just fired its CEO and there is perhaps room to the upside?  How about earnings?  Terrible = -$1.95/share.  Last year, earnings were +0.07.  Revenue has also dropped by -28%, within one year.  Awful.  The managing directors finally had enough of the existing CEO and gave him the boot.  Can the next CEO turn the company around?  Comparable companies are Macy’s or Kohls.  Macy’s last earned $2.05/share and revenue increased +7% since last year.  Macy’s stock sells for $44.63/share at a price earnings ratio of 13.“

• There have been individual stock stories that have resulted in very significant returns for individual investors over the last nine months.  Individual investors will find opportunity where there is predictable behavior occurring in the context of an excellent growth or recovery story at a company.  With the broader U.S. markets in a possible lateral consolidation after a strong run HIGHER since November 16, 2012 lows, there is room for individual stock stories to emerge and be excellent investments.  This is what we at SMC are after.   SMC examples of this are – Facebook at $18.60/share, which advanced to over $32/share this fall, Hewlett Packard shares which advanced from $10/share to over $23/share; Acadia Pharmaceuticals at $5.16/share and now at approx. $13.40/share.
  
• Typically, when the market puts in a “top” such as we are seeing from Wednesday, we would sell all of our holdings and buy some SDS (mentioned above).  We are however holding but one stock and it performed well on Friday = Arena Pharma (ARNA $8.30).  We are still strongly upside-down on this investment, but this a development stage drug company whose drug “Belviq” is an appetite suppressant, has received USDA approval, has established a marketing arrangement with a company capable of handling large scale markets, and is now but a few weeks away from launching the drug in the USA.   It’s marketing partner is going to pay a $65 million milestone payment to ARNA by mid-June.
  

  We are willing to take the risk to see how initial sales progress in the U.S. for this “diet drug”, which does require a prescription.  For those who have not yet initiated an investment in this one, an entry here at the approx. $8.30/share level and a stop at $7.40 may represent a relative attractive entry point to see if this one is going to really move.

  Here is a short video that we have made about ARNA this late winter as things were not really shaping up very well for our investment  in Arena Pharmaceuticals – We have taken time to create this 5 minute teaching video on this one to give you an idea of how we are seeing things recently.  (Please click on the link and the video will open in a separate tab on your browser).

   

• Acadia Pharmaceuticals remains “untouchable”, because there is no way now to enter the investment with a stop-loss within a reasonable measure of -8-10%.  Our SMC investment idea from January 2013, Acadia Pharmaceuticals (ACAD 13.40), has gained over +160%.  It is no longer behaving predictably.  We wrote two weeks ago – “ACAD has recovered well from the market turbulence from the terrible Boston situation, and the shares sit +160% higher than our indicated buy-point of $5.18 on January 14, 2013.  After such a strong run, it is difficult to recommend an entry for an initial investment here, although the shares are indicating a possible continuation jump higher from here.  There is simply not a good place to put a reasonable stop.  Recent lows of $11.81 would present a decent place to put a protective stop, but it that stop was triggered, the loss would be at least -12%.
  

  
  Here’s our note at the end of December 2012 that prepared the way for this investment for SMC members –

  “(ACAD $4.95) continues to establish itself in a lateral fashion, and appears at the moment to be perhaps ready to move HIGHER.  A move above $5.18 will get us on board.  We have highlighted Acadia Pharmaceuticals (ACAD $4.95) as a stock to watch, after the shares JUMPED +43% in value almost 1.5 months ago.  We wrote …”The company has received brokerage upgrades to approx. $9/share, after demonstrating very positive Phase III results for their drug that fights Parkinson’s Psychosis (PSD).Please click here for the company’s press release highlighting this very significant development.  The shares need to consolidate in a predictable pattern before we will consider an investment.”  Selling has continued in the shares, pushing their value back below recent consolidation support at $4.81.  We have time to watch this one carefully.”“
  

• Please click here to view today’s Stock Market Companion Daily Chart of the S&P 500 ETF (SPY) – Our Roadmap for Successfully Investing in the U.S. Domestic Stock Markets.
  

   

• A close friend and long term (3.5 years) paying subscriber of Stock Market Companion mentioned recently on the phone that he had earned approx. $26,000 by engaging SMC ideas like Facebook (FB) and Acadia Pharmaceuticals (ACAD), as well as other investments that he made in the markets – on his own, since October 2012.  We will inquire for a short written testimonial.  Most importantly, I asked if he had sold his positions, and he said, “Yes”.  This means he captured his gains.  He did what many successful investors have and continue to do – He profited in the stock market and took those profits and invested in real estate.
  

   

• Here’s our early alert on Hewlett Packard which led to a +47% return in 3 months time = “Hewlett Packard (HPQ) has now advanced +11% from our last update, when we shared this chart – “Click here for our SMC Daily Chart of Hewlett Packard Co. (HPQ $13.68), which shows how we are viewing possibilities.””
  

• There are pockets of strength and “oversold” conditions that we at Stock Market Companion will engage in – like our first Facebook investment at approx. $19.20 / share in September 2012 – which recently increased to over $32/share = +66% in 5 month’s time!
• Please click here to send us your feedback.  Let us know how we are doing – We are here to serve you.  Support@Stockmarketcompanion.com