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January 18, 2014 – Weekend Market Comment

January 18, 2014 – The Standard & Poor’s 500 Index fell for the week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.
The S&P 500 (SPX) declined 0.2 percent to 1,838.70 for the five-day period. The Dow Jones Industrial Average gained 21.51 points, or 0.1 percent, to 16,458.56 for the week. Twenty-eight companies in the S&P 500 including Goldman Sachs Group Inc. and Bank of America Corp. reported quarterly earnings during the week. Out of the 52 companies in the gauge that have posted fourth-quarter results so far, 62 percent have exceeded analysts’ profit estimates, and 63 percent have topped revenue projections, according to data compiled by Bloomberg. Equities also fell during the week amid concern over valuations. The S&P 500 trades at 15.6 times the estimated earnings of its members, near the highest level since 2009 and more than the five-year average multiple of 14.1

For investors who were looking for a repeat of 2013, 2014 has not gotten off to a very good start.  Yes, the slow start has been a bit disconcerting, but when you compare the performance of the DJIA since the start of December to its performance from December through January over the last twenty years, the current pattern is nearly a carbon copy of the 'typical' pattern.  If the pattern continues, look for continued weakness through next week before a rebound to close out the month.

Although the market is at overbought levels and the pace has slowed since December there still seems to be upward momentum, the same thing I have been saying for three week -- overbought but nothing to say it can not continue.  Monday the market sold off but Tuesday it bounced right back as the buy the dippers did their best to shrug it off. Thursday was option expiration a day known for volatility, but no, the markets were calm and even up slightly.  Over the last few weeks small caps continue to outperform large caps and offensive sectors are at all time highs, but defensive stocks are lagging. However on Thursday and Friday there was a turn in the Utilities index (XLU red line below), so this could be the end of an offensive run.
(as always click any graphic to enlarge)

The NYSE market forces still are looking hopeful.


The Primary sell shows that the pros are not as euphoric as last week, but the thing with this indicator is that any reading above 1 still shows the majority is long so this really is not a warning -- yet.

The NASDAQ summation index marches higher after a small stumble.


The NYSE is not making much headway, as less than 70% of listed equities are above their 50 day average.


The VIX continues to look more confident -- but it has hit the point where it did turn before.



What Works Now
Here are five equities with great upside potential that have continued to make new highs.

Netsuite
Investors would be hard press to find as much of a long-term winner as the company Larry Ellison founded, Oracle. Now Wall Street is hoping for lightning to strike twice. NetSuite, co-founded by Ellison in 1998 to deliver business apps via a software-as-a-service model. The company hopes to invade the lucrative market in CRM that salesforce.com dominates and taking on SAP in accounting.

NetSuite can be a much more affordable option for customers compared with licensed software, since they simply pay for a one-year subscription for software NetSuite hosts and delivers over the Internet. But what's good for the goose isn't always good for the gander. With traditional licensed software, customers may pay thousands or millions of dollars up front, which the vendor can funnel into sales and marketing costs, personnel costs, or even research and development. In the SaaS model, the revenue trickles in at a much slower rate, and is often out-paced by operational costs.

So far, demand has grown steadily for NetSuite's SaaS offerings of such things as accounting, payroll, order management, and customer-relationship management software. Its sales grew from $3 million in 2002 to $67.2 million in 2006, up 85% over 2005. Revenues for the first nine months of this year were $76.8 million, up 63%. Yet, NetSuite has never posted a profit. It had a net loss of $35.7 million for 2006 and $20.6 million for the first nine months of this year, and as of Sept. 30 it had an accumulated deficit of $241.6 million. Even SaaS's pioneer and most successful company in the area, Salesforce.com, exists on small profit margins as it approaches an annual revenue run rate of $1 billion.

Regeneron Pharmaceuticals
Regeneron (REGN) shares could see a big jump in 2014. The big promise in the year is with respect to expansion of its eye treatment product, Eylea. Analysts expect the company to grow profits by more than 50% in 2014. At current prices shares trade for 54 times 2014 estimated earnings. That’s a rich premium, but not nosebleed compared to some momentum stocks. The real potential for growth to be even larger than expected is what turns on the momentum ground and as other rocket ships come back to earth look for this one to keep on climbing.



KYTHERA Biopharmaceuticals, Inc.,
Kythera is a biopharmaceutical company, focuses on the discovery, development, and commercialization of prescription products for the aesthetic medicine market. Its product candidate, ATX-101, is an injectable drug in Phase III clinical development for the reduction of submental fat. The company also has various additional research programs around therapeutic intervention for hair loss; and maintains active research interest in hair and fat biology, pigmentation modulation, and facial contouring.

If that is not exciting enough, this stock often moves 5% in a day, like it did most days this week.


And two picks from Canada:

NuVista Energy
NuVista a play on the increasing price of Natural gas. NuVista believes that decreasing costs coupled with improved well performance will help it improve the economics of its Montney play. The recent drilling results look encouraging – the nine latest wells in that area show an average IP-30 of 1226 boepd (31% condensate). However, the total cost per well remains high at around $8 million.

Rock Energy
A junior Oil and Gas play boasting a clean balance sheet with minimal debt, A development drilling inventory of 4-5 years (over 100 locations) at current drilling rates.



How to Play This
Well of course its late in the party. Historically February is not a great month,  ending on an up-note about 53% of the time, but March and April are up about 75% of the time. I continue to advocate play it safe and buy after a pull back. Still there is nothing compelling to say sell now. Lower your risk, raise your stops and hope for a continuation.

What Happening Next Week
Yawn - the World Economic Forum’s annual meeting gets underway Wednesday in Davos and runs through Saturday. Expect a lot of talk of deflation fears, the Yellen Fed, China, income inequality, Europe’s still-troubled banks, and a steady flow of snark and indignation.


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It may be cold in the Upper Midwest, but folks in Madison, Wis., don't feel like cuddling. The Snuggle House has closed its doors, according to its Facebook page.

The business, owned by former health supplements salesman Matthew Hurtado, was only three weeks old. The entire enterprise had a hard time getting off the ground. Its planned opening in October was delayed a month as city officials tried to get their arms around the idea. Some locals were reportedly concerned the business could be a front for prostitution.

During the delay, The Snuggle House put up a website offering "therapeutic cuddling" for $60 an hour.

It profiled its staff, including one man, Lonnie, a long-maned former camp counselor. Here's his video. "He had 300 to 400 applications before they opened," said Hurtado's attorney, Timothy Casper.

Finally, an occupancy permit was granted, and local Councilman Mike Verveer said he received no complaints. The sudden closing surprised him. "My guess would probably be that they just didn't have the business that they anticipated," he said.


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Yet another parabolic up week for the markets. Honestly folks valuations are really stretched here. The air is so thin at this altitude. Then again the markets can and do (on a short term basis) anything they want. Still I would expect a little pull-back in the next two weeks.


Lets see what is in the charts this week:

CLICK HERE: To see the 100 and 200 series charts



101 Bull Bear Bull market (dark green over red) and now the short term (light green) is up sharply. Also note the dark green 50 day average is in a firm uptrend. NOTICE THE SLOPE (second window), this could be part of a new long term uptrend.Bull market -- expect bullish outcomes…