After making new highs on Monday, the market showed signs of weakness yesterday with agricultural stocks pulling in hard after an extended move to the upside. PotashCorp/Saskatchewan (POT), The Mosaic Company (MOS) and CF Industries Holdings, Inc. (CF) were hit the hardest. Futures are gapping up today on news of a Genzyme Corp. (GENZ) buyout and bullish earnings from Dell Inc. (DELL).
“At this point, traders are looking to size down positions until new bases occur and consolidation takes place,” says Scott Redler, Chief Strategic Officer at T3Live.com. Gold and silver both gapped up and will look for continuation to the upside, but most of the action is occurring overnight in these commodities. In a down tape relative strength can be easy to identify. Coals and metals showed positive signs powering through resistance levels with United States Steel Corporation (X) up nearly 3.25% and Alpha Natural Resources, Inc. (ANR) up 1%. Financials also held in nicely in a down tape yesterday with JP Morgan Chase & Co. (JPM) breaking out early in the trading session.
As we’ve seen throughout the beginning of 2011, money continues to rotate from sector to sector and it’s important to follow the action. Today traders will be keying on big and regional banks such as SunTrust Banks, Inc. (STI), JP Morgan, and Goldman Sachs Group, Inc, (GS) to see if they can catch a bid. In the meantime be cautious with paying up for stocks as the market feels a bit tired.
Catch-Up Play in Steel Sector
As mentioned earlier in this article, US Steel (X) had a powerful day yesterday and we could see other steel stocks follow suit in the upcoming trading session. AK Steel Holding Corporation (AKS), which is trading up pre-market, could be a laggard catch up play with the upgrade of US Steel yesterday. Momentum trader Mike Lee stated, “If AKS gets above $16.50, it would be prudent to add above $17.00 for a short-term target of $20.00. Make sure to set your stops at $15.25 and for longer support at $13.50 is the line in the sand.”
Citigroup Play of the Day
Another interesting setup is in one the age-old banking stocks, Citigroup Inc. (C). Although this symbol has not been the beacon of strength as the market has rallied over the past six months, it could certainly have more gas in the tank. Evan Lazarus, from T3Live.com, says “At this stage in the rally, it’s important to look for lower risk plays with good setups.”
Citigroup appears to be coming out of a multi-month consolidation pattern to the upside. We have identified the $6.50–$7.00 area as a potential target, with no more than .30 -.40 cents of risk from current price levels. Be patient, as this could take some time to develop.
*DISCLOSURE: Scott is long GOOG, AAPL, GS, GLD, PWAV; Short SPY. Evan is short NFLX. Mike Lee is long AKAM, DANG, AKS, LVS, and LLNW; Short SPY, KLAC.
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