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    M A R K E T C O M M E N T

    June 10, 2012

    KEVIN MARDER

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    Encouragement

    "Chance favors the prepared mind."

    --Louis Pasteur, 1854

    Shares showed encouraging behavior last week, with the Nasdaq bouncing off its200-day line. The key distinction was not the 200-day bounce, but that price foundsupport so soon after it undercut the low of two weeks prior, as seen in the belowchart.

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    After a market has declined amid a cascade of negative news, these are the thingsthat this participant looks for to determine a durable bottom:

    1) Ability to rise amid ongoing bad news.2) Major accumulation days in the averages.3) Basing and breakouts in leading issues.

    Notice that there is no mention of an ONeil follow-through day. While this isalways welcomed, it is not a prerequisite. Some FTDs are also majoraccumulation days.

    It is tempting for a less-experienced participant to become mesmerized by thenews. In our view, this is not the optimal way to view the general markets health.This is because the market, in its inimitable wisdom, is a discounting mechanism,pricing the outlook for the next six to nine months, roughly, into todays prices.The market sees better than we do.

    Therefore, one cannot expect to be there when the market turns if one is focused onthe news. In fact the preferred sentiment indicator is not the surveys of variousmarket participants. It is the markets behavior to news. At most bottoms, themarket will go up despite the news being sour. The reverse is the case at most tops.

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    Applying the above three steps to the current situation, last week the averagesignored the bad news out of Europe and the so-called fiscal cliff of highertaxes/lower spending slated to kick in later this year. In particular, prices rose whenSpain asked for help. As for major accumulation days, there has not been one inthe Nasdaq, but there was one in the S&P last week, as seen below.

    Not only was there a major accumulation day (Wednesday), but price went out atthe top of the days range. Also notice the range of Wednesdays bar: It dwarfsevery other day except for one on the seven weeks of the chart. Then Friday againwent out well.

    A good number of the speculative growth stock glamours are completing five-week bases. In itself, this is the largest positive that we see.

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    Among the names, we have been watching the first two breakouts, Pharmacyclics(PCYC) and Petsmart (PETM) , for sentiment clues. Last weeks action in bothwas encouraging.

    PCYC, below, emerged from a low-volume pullback last week after it foundsupport at the top of its prior base. In hindsight, one could have purchased the

    sustained breakout on Tuesday, but it was not noted here, as the general marketwas more dubious then. Also, this represented a higher-risk entry, as price is notbreaking out of a legitimated base, merely a shelf.

    The base that PCYC did clear initially, which is outlined in gray, was quiteattractive. The price/volume sequence has been classic.

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    The second breakout, PETM, could have been entered on its breakout day, asshown below. Similar to PCYC, it would have been aggressive to take this setupdue to the general market being in poor shape at that point.

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    Under Armour (UA) broke out on Friday, as volume rose 138% above normal,exactly the type of conviction that is desirable. The stock is potentially buyable atcurrent levels for those aggressive participants who seek some exposure to theglamours in advance of any firming in the averages.

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    Dollar Tree (DLTR) last Wednesday came out of a five-week, 11% deep patternon volume 63% above normal. The volume is difficult to see on the below chartdue to the December volume spike which affected the scaling of the horizontalaxis. At Fridays closing level, price is 2.5% above the May 2 top of the pattern at104.08, and is therefore not yet extended above the base, and is potentiallybuyable. A standard protective sell stop 5%-7% below entry is reasonable.

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    Equinix (EQIX) completed a six-week base on Friday, and is potentially buyableabove the Apr. 26 high of 172.44. This was one that we missed when it originallybroke out on Jan. 5 due to the averages not yet showing enough accumulation. Itthen was perhaps the most impressive of the glamours in the Q1 run. Earningsestimates are 52%/43% for 12/13, and were most recently revised higher. Thereare very few titles in the current market with estimates this hefty for 12 and 13.This fact, plus EQIXs deep liquidity (average daily dollar volume of about$200MM), makes this attractive to institutions.

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    Ulta Salon (ULTA) , with its big estimates (34%/26% for January 13/14), deepliquidity (average daily dollar volume of $95MM), and solid earnings stability(18% standard deviation), on Wednesday cleared a seven-week base to rise 8% on254% more volume than usual. The high of 97.89 could be used as an entry pivotby an aggressive speculator seeking some exposure to leading issues.

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    Alexion Pharmaceuticals (ALXN) has beefy estimates of 30%/40% for 12/13,deep liquidity (over $180MM in average dollar volume), good earnings stabilityconsidering the growth rate, has extremely high group RS, and appears close toputting the finishing touches on an 11-week base. The May 22 high of 94.36 couldbe used as a potential entry pivot.

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    Other glamours that merit attention for their basing action include Whole FoodsMarket (WFM), Athenahealth (ATHN), Allot Communications (ALLT),Cirrus Logic (CRUS), TJX Cos (TJX), Sally Beauty Holdings (SBH),Liquidity Services (LQDT), Cerner (CERN), Bally Technologies (BYI),American Vanguard (AVD), Carters (CRI), Chipotle Mexican Grill (CMG),Vivus (VVUS), GNC Holdings (GNC), Monster Beverage (MNST), IntuitiveSurgical (ISRG), Apple (AAPL) , and SXC Health Solutions (SXCI) .

    In summation, the trend remains down in the averages. On the bright side, themarket began ignoring most bad news last week, the S&P put in a majoraccumulation day, and a host of leading titles are forming five-week-plus bases. Asthey break out, a few of these can be taken by the aggressive speculator seeking topre-empt strength in the averages. Otherwise, less-aggressive players shouldremain in a full cash position pending further accumulation days. Of import is anopen-minded, flexible approach and a one-day-at-a-time focus.

    Louis Pasteur would agree.Kevin Marder

    More market analysis of the cycles leading stocks, and actionable stock ideaswith specific buy points on their charts, may be found by going towww.GilmoReport.com and subscribing to twice-weekly updates.

    Charts created using TradeStation . TradeStation Technologies, 2001-2012. All rights reserved.

    The views contained herein represent those of Marder Investment Advisors Corp. At the time of this writing, of thestocks mentioned in this report, Gil Morales & Company LLC (GMC), Marder Investment Advisors Corp., or anaffiliate thereof held no positions, though positions are subject to change at any time and without notice. Gil

    Morales & Company, LLC, 8033 Sunset Boulevard, Suite 830, Los Angeles, California, 90046. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer tosell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believeto be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance is not a guarantee, nor is it necessarily indicative, of future results.Opinions expressed herein are statements of our judgment as of the publication date and are subject to changewithout notice. Entities including but not limited to GMC, its members, officers, directors, employees, customers,agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is availableupon written request. This publication is for clients of GMC. Reproduction without written permission is strictly

    prohibited and will be prosecuted to the full extent of the law. 2012 Gil Morales & Company, LLC. All rightsreserved.

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