A Gentle Float
Since tomorrow is Christmas (already?!), I’m sending your Breakout Stocks Weekly Update a day earlier than usual to share just a few news items with you and discuss how our Buy List is positioned heading into the new year.
The last few days have presented traders with a classic gentle float to the upside as the window for last-minute market activity comes within days of closing its books for the year. This is the time of year when stock prices move in step with factors like the tax calendar, mutual fund manager rankings and catch-up retirement plan contributions.
Money is flowing into the market without much guidance from corporate fundamentals. In fact, I’m even tempted to call this the “Santa Claus Rally” we’ve been waiting for as stocks appear to be climbing in groups rather than as individual names.
Most of our Breakout positions have benefited from this pattern, and this week in particular has given a few of our once-depressed positions a welcome lift. Lionbridge Technologies (LIOX) and Supreme Industries (STS) are now on the verge of turning positive, while Zhone Technologies (ZHNE) has emerged as a place where bargain hunters can really put some capital to work.
Meanwhile, our richest positions seem to be gathering some strength for their next move to the upside. I am confident that both First Bancorp (FBP) and Crown Media (CRWN) have more room left to run before we exit, and I have my eye on several other names as potential near-term sell candidates into strength.
As far as harvesting tax losses, the time to cut our long-term disappointments is also drawing near. I’ll be looking to move out of these positions before the end of 2014, so keep a close watch on your email inbox as we make moves to close out a remarkable year and position ourselves for 2015.
Ask Hilary: Outlook on SSRI?
As always, I love hearing from subscribers and am eager to answer any questions you may have. You can get in touch with me by emailing service@kramersbreakoutstocks.com or clicking the green “Ask Hilary” button on the website. Let’s take a look now at a recent concern over one of our struggling positions.
I am worried about Silver Standard Resources (SSRI). What is your latest outlook? – Doug
Hi Doug, you bring up a great question. After getting the month off to a strong start, SSRI has slipped in recent weeks. However, the stock’s chart tells me that the short-term trend still looks good enough to feed the bounce we have been patiently waiting for and SSRI has proven it can come a long way in a very short period of time. So whenever the rally does hit, we should see a quick reversal from these low levels.
In the meantime, we are still only halfway through our target six-month holding period. While I am never thrilled when a trade takes longer than a few days to start moving toward the upside – much less drift into the red before it recovers – I am actually more optimistic about the value this stock represents now below $5 than I was three months ago above $6.
Both silver prices and SSRI are trading around where they were in the 2009 crash, so we are now in a situation where the shares are already priced for a disaster – one that I am not truly convinced is coming. Right now, I believe the February earnings will be all SSRI needs to remind Wall Street that it is healthy.
While I am passionate about the end-to-end investment potential of every stock I recommend, it’s important to understand that the part in the middle is often not a smooth ride to the target. That’s especially true in a volatile market. We have seen many of our positions – most recently Entravision (EVC) and Reading International (RDI) – recover from steep losses and actually close deep in the money, and I believe SSRI is positioned to eventually join their ranks.
Overall, I continue to like the value and potential of this position. SSRI is a buy under $6.50 and remains one of our Top Buys.
Top Buys Update: Remove FBP, Add CTIC
I also wanted to take a moment to update the rest of our Breakout Top Buys, as one of the two remaining positions has made its move toward the upside and is no longer the best possible place for new money.
CTI BioPharma (CTIC) has proven it can make quick moves to the upside, and the recent pullback gives us another chance to buy in at an attractive level for that next leg up. With extremely encouraging clinical data already locked into this story, CTIC could make its previous progress look small over the next few months or weeks. Buy CTIC below $2.50, replacing First Bancorp (FBP), which has already given us a great run and moved above our limit.
As for my final Top Buy, Moneygram’s (MGI) situation looks a lot like what we see with CTIC. Shares are trading just under our buy limit, but remain a good opportunity under that price. We may replace this one in the near term as it moves higher, but for now, continue to buy MGI under $8.75.
Gauging the Market’s Cheer
Many investors consider the period between Thanksgiving and New Year’s Day as a relatively calm lull when holiday preparations seem to take attention away from Wall Street. However, the market seems to be picking up some speed this year rather than letting activity taper off into the holiday. Average daily volume on the S&P 500 – the most aggressively traded ticker symbol on Wall Street and a proxy for the broad market itself – is up 28% this month over last year. Even compared to a “working” month like April or May, daily turnover so far this December is actually trending as much as 44% above what many traders would consider normal activity.
This may feel frantic to those of us juggling family obligations while trying to monitor our portfolios, but it reveals that two extremely positive factors are driving the market now that traders have embraced oil prices below $60 per barrel.
First, the recent rally feels much more authentic than the relatively tepid drift to the upside that dominated November. The bulls are back in much stronger numbers than the isolated sellers who pushed asset prices lower after Thanksgiving, and the sellers’ conviction seems to have sputtered in the face of such concentrated opposition.
This is good news as it shows us which way the sentiment winds are blowing as we quickly approach the start of the fourth-quarter earnings season in just three short weeks. Left to their own devices, traders are voting with their wallets that the market still has room to run.
That opens up the second gift of this unusually active holiday market environment: Much of the minute-to-minute activity seems to be operating on autopilot in the absence of specific stock-driving catalysts. Both traders and their automated algorithms are adjusting the books going into this year’s final bell.
That means that we have a chance to relax and recharge our batteries through the long holiday break. As I mentioned earlier, we may look to sell into year-end strength and I will certainly send you a Flash Alert any time there is an important opportunity, but overall our trading activity will be light in the final days of 2014. As a reminder, the market will close early today at 1 p.m. ET and remain closed all day tomorrow December 25. It will again be closed next Thursday, January 1, so you can expect your next Weekly Update to also come early on December 31.
I wish you a wonderful, relaxing and safe holiday weekend!
Sincerely,
Hilary Kramer
Editor, Breakout Stocks Under $10
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