Two years ago to the day, on March 9, 2009, the faltering stock market decided ‘enough was enough’. Reckless greed on Wall St, a housing bubble decades in the making and inadequate government oversight led to the most painful economic recession since the Great Depression, and sent the stock market plunging lower than anyone thought could reasonably happen. 666 and change was the ultimate intraday low for the S&P, providing the buying opportunity of a lifetime for sophisticated investors who had been stalking confidently while the bedeviled herd, having lost complete faith in the system, headed for the exits en masse. The deficit has swelled as the government swooped in to rescue under-capitalized banks, in the process wiping away any sense of accountability and running the risk of moral hazard. Say what you will about the bailouts, quantitative easing programs and lack of fundamental change on Wall St, but any way you slice it, it’s been a great two years for the market as the S&P has surged around 95%.
Now let’s get back to the present day action. US stock futures are flat to slightly higher, giving back some modest overnight gains. The macro S&P wedge pattern remains in place, a sign of indecision from investors over the next prevailing direction of the market. Monday we probed the lower trendline of the pattern, and yesterday we snapped back to the upper end of it, and its possible we could continue to see a tightening of the range before the ultimate resolution.
For more market and stock commentary, watch T3Live.com’s Scott Redler’s Morning Call video below.
Optical Stocks Hammered on FNSR Outlook Revision
A drag on the already relatively weak tech sector overnight was a weaker-than-expected earnings report from optical networking company Finisar Corporation (FNSR). Finisar reported earnings and revenue in line with expectations, marking a 300% jump in net income, but guided significantly lower, sending the stock into a freefall. Overnight as it currently stands, FNSR is down a whopping 38%! The weak outlook has also taken its toll on other in the sector, including its bigger competitor JDS Uniphase Corporation (JDSU), which is down more than 14% pre-market. The momentum trade in the optical group is over, but we will watch it in the periphery to see if any further action ensues.
Agricultural Stocks Weak After Downgrade
The fertilizer group, led by The Mosaic Company (MOS) and PotashCorp./Saskatchewan (POT), has been one of the highest performing sectors in the market over the past two years, with both of those aforementioned stocks nearly tripling in that time span. We have been bullish on the sector given the macro growth story for potash and phosphate fertilizers, but bearish action in the last two months has caused us to approach the trade with more caution.
In the last two months we have seen now three harsh 7-11% 2-3 day pull-ins in the ferts, which signals some large investors are taking profits at these levels. This morning, POT and MOS are following through on weakness from earlier in the week after both being downgraded to hold from buy at Citigroup, Inc. (C). In the past these stocks have bounced off major moving averages, most recently the 50-day. With both POT and MOS now sitting just below those MA’s, watch how they react this morning. It could be another buying opportunity in the sector if they get a push early.
Banks Back from the Brink
The financial sector led the market down to March 2009 lows, so its fitting that on the 2nd anniversary of the bull market the banks are once again ‘coming back from the dead’. The sector has been plagued by regulation and investigations, and has lagged the market over the last year. Monday, the sector showed relative weakness, as former group leader Goldman Sachs Group Inc. (GS) broke down through the neckline of its head and shoulders pattern. However, Bank of America Corp. (BAC) yesterday proved to be a bullish catalyst for the sector, as positive comments emanated regarding the future of B of A. Morgan Stanley, for one, came away very impressed with B of A’s presentation and reiterated its overweight rating on the bank with a $22 price target.
Semiconductors a Drag for Tech
The tech sector has outperformed the other blue chip indices during most legs of the current rally, but more recently has lagged. Weakness in the semi-conductor sector has contributed to that weakness. Wells Fargo Company (WFC) yesterday came out with a downgrade of the entire semi-conductor sector, and bearish chart patterns confirm that the group could be set for lower prices.
In particular, Cypress Semiconductor Corporation (CY) looks to be setting up a bearish head and shoulders reversal pattern. Traders should keep a watchful eye on the $19.75 support area for a potential breakdown, says Evan Lazarus of T3Live.com. Stops for said trade would be in the $22.20 area for now, and with a clean break through that neckline the pattern should take the stock down to the $16 area.
*DISCLOSURE: Scott is long AAPL, BAC, GLD, MGM, INVE, BIDU. Evan has no positions mentioned.
This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. Visit the T3Live Homepage, Virtual Trading Floor, and Learn More About Us.
