Dr. Kris'  Instablog

4:00pm ET: The market continues to melt up and it appears as if there's more room to run as the VIX continues to fall and the Transports (DTX) continue to lead. Most of the sectors continue to hit new highs with the notable exception of pharma and healthcare which are taking a much needed break.

Today's Highlights: Metals continue to slide with some hitting new yearly lows. Silver (SLV) and the Gold Miners (GDX, GDXJ) were among today's biggest losers in this space while Gold (GLD, IAU) is testing major support at the $1300/ounce level ($130 on the GLD and $13 on the IAU). Commodity based currencies Aussie $ (FXA) and the Canadian $ (FXC) ranked among the biggest currency losers as a result.

Surprisingly, oil and clean energy are hanging in there. Today, the Oil & Gas Explorer etf (IEO) decisively broke through major resistance at $75. Its next test could come at the $80 minor resistance level and should it pass that, a move to the $87-$90 level would be next. Closely following in its footsteps are the Oil & Gas Services funds (OIH, XES) which could break out as soon as tomorrow. The oil and gas commodities themselves aren't looking so bullish but that situation may change soon, especially with the summer driving season looming upon us.

The clean/alternative energy space is definitely on the move. We previously noted the rise of badly beaten down solar stocks and today they again led the alt-energy pack. The Gugghenheim Solar etf (TAN) recently broke out of a year long base. The fund gained another 5.25% today.

Stocks poised for further upside
From time to time I post stocks that are rallying on increasing volume. What this means is that institutions are starting to take notice and a further rise in the stock (barring any downturn in the market) is typically the norm. Today I'll be mentioning two such stocks.

The first is Rite Aid (RAD, $2.8). The company jumped on better than expected earnings on 4/11 and volume since then has been increasing. The stock has been consolidating for the past few weeks but that all changed today when it jumped over 7% on twice normal volume. Those in the know are saying that this company's metrics are improving and that it is currently undervalued compared with its peers. It looks like Wall Street agrees.

The second is Tearlab (TEAR, $10.16). The company enables eye doctors to test tears for a range of biomarkers. The stock has been rising for more than a year and a half as volume slowly increased. However, the volume has been stepped up substantially in recent months. The company recently beat earnings estimates on expanding margins causing not only a jump in share price but a jump in volume.

The two above-mentioned stocks are worth your consideration and as always do your own research before investing. Enjoy this lovely spring weekend!

Subscriber Notes: There is one new Stock Darling.

May 16, 2013

4:00pm ET: It looks as if yesterday's internals didn't lie because we got our expected pullback today. The question is whether or not today's drop is a one day event or if we're in for more downside. Judging from today's leadership to the downside by the Transports (DTX), tomorrow could start off on the wrong footing but we may not stay in negative territory for long. The volatility index (VIX) should have made a bigger move up today considering the negativity didn't react much indicating that the bulls are still in control. Also, the sharp reversal to the upside going into the close indicates short-covering. This shows us the bears are afraid to hold short positions for any length of time.

So is there an upper limit to this market? Some stock pundits like Peter Lynch believe in the "Rule of 20" which states that a market equilibrium P/E ratio should equal 20 minus the inflation rate (given by the CPI). Using the latest inflation figure of 1.1 would imply an equilibrium P/E ratio of approximately 18.9 times earnings. Calculating the upper bound of the market depends on which earnings multiple you use: the trailing 12 month, the 12 month forward estimate, or some sort of average value. Using $86 as the trailing earnings level on the S&P (from Standard & Poors) and $114.5 as the forward estimate (from Factset Research) gives us a range in the SPX from a low of 1625 to a high of 2165. I'm not an expert on this topic but if we're to assume the trailing earnings number, then the market is already overextended. On the other hand, if we're to assume the forward earnings figure, then the market has a long way to go before it corrects. A lot of this will depend on when the Fed decides to start raising interest rates which many feel could be by the end of this year.

The moral of the story? Be vigilant and don't become too complacent. There's still half of the month left for the "Sell in May" scenario to unfold. Beware of the Bear!

Subscriber Notes: There is one new Stock of the Day.

4:00pm ET: The market continues to melt up but internals are beginning to show some tiny signs of fatigue. Although I definitely wouldn't bet against the market, I wouldn't be surprised if it took a step back in the next day or so.

Today's notable market action: Toot, toot, hey, beep, beep!
Commodities continue to slump as gold and silver miners continue to sell off, some to their lowest levels not seen in years. As an example of just how far they've fallen, consider gold miner Allied Nevada (ANV, $8) which has lost more than 80% of its value since mid-October. The Gold Miner etf (GDX, $27) and the Junior Gold Miner etf (GDXJ, $11) have lost 55% and 40% respectively over the same time period. Just because these issues are well off their highs doesn't mean now is the time to step in and buy--far from it. Their charts show no signs of basing and I'd wait until they break out to the upside before initiating a long position. Remember, never try to catch a falling knife!

On the flip side, automakers were among today's winners as the following issues motored to new highs on heavier than normal volume: Fiat (FIATY, $7), General Motors (GM, $32), Ford (F, $15), Isuzu (ISUZY, $86), Nissan (NSANY, $23), Honda (HMC, $41), and Toyota (TM, $127). Most of these tacked on 2-3% to yesterday's share prices except for Isuzu which jumped 14% on three times normal volume. Most of these companies are still undervalued with P/E's hovering around 10 except for Honda and Toyota with P/E's of 19. (Fiat has the lowest P/E value of 6.) Aside from Fiat and GM, all of the above pay a dividend (most around 2%). Adding some wheel makers to your portfolio could definitely give it some traction, and that's something to toot about!

[Note: For a little topic apropos background music, check out this classic music video.]

Enough auto metaphors. That's it for today.

Subscriber Notes: There is one new Stock Darling.