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May 05

Entering Long $KORS, $BRCM, $CELG, $PIR

We’ve mentioned in recent updates how we’re noticing a lot more bullish setups emerging which leads us to believe we’re entering another leg higher here in the broader market, one that may be more sustainable than many believe possible. The level of skepticism accompanying these new highs is like nothing I’ve ever seen before in my 25 years of studying markets. We’ll resist temptation to predict anything specific but while that environment remains in place we’ll continue to recognize uptrends as they emerge and trade them accordingly.

Here are 4 names we will be entering on the long side at Monday’s open:-

Michael Kors ($KORS)

$KORS is a name we’ve continued to comment on a lot since we exited a long in early April after it continued to act poorly. It’s tried repeatedly to resume the longer-term trend higher and struggled to overcome resistance around the $57 level, but finally appears to be on its way. Although it’s only one day above that level, and even then it faded late in the day, I like the fact it gapped above that resistance and didn’t come close to testing it again. It was also on increased volume, something we hadn’t seen for a while, and continued a recent run of higher highs and higher lows since testing the 200-day just two weeks ago.

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Broadcom ($BRCM)

At first glance this looks more like a chart on a heart monitor. The patient in this case is Broadcom and after two years of convalescing it looks like they’re going to make a full recovery. We’ve been watching this one for a while and have wanted to be very patient, not pulling the trigger too early in order to be sure, hence the longer-term weekly chart below. On a short-term basis (not shown) the signs are equally encouraging, the MA’s are stacked (meaning 20 > 50 > 200-day), and there was some good volume accompanying this move. This kind of price action also readily gives us some meaningful risk parameters, so a clean break of that $34.00-$33.50 area would suggest price is re-entering that triangle formation and tracing out a more complex consolidation pattern.

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Celgene ($CELG)

When a stock has been in a sustained uptrend without a test of the 50-day I’m always wary of the potential for it to happen. If it can do it coinciding with a previous support/resistance level, that’s even better. We’ve had exactly that scenario now with Celgene, so for me it becomes a good risk/reward long here. A clean break of that $113 area is a good nearby stop, as a second retest of the 50-day so soon after the last would suggest a lengthier retracement is unfolding, and we can be out cheaply vs the potential reward if the longer-term uptrend is resumed.

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Pier One Imports ($PIR)

$PIR has been in a monster uptrend longer-term, so it’s been no surprise to see it move sideways for the last 3 months while the rest of the market catches up. It’s encouraging then to see that while it’s undergone that period of underperformance there’s been little to no damage to its overall trend. That consolidation appears to be over now with a breakout on increased volume to fresh highs on Friday, getting the stock back in synch with the market. Although the last pivot low is down at $21.39, we’d likely get a warning of a failed breakout earlier than that, possibly a move down below $22.50, which gives us an attractive risk/reward long here.

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