The futures are edging higher Monday despite escalating unrest and lawlessness in Egypt. The scene from Northern Africa over the weekend were shocking, but investors are choosing instead to put Friday’s sharp decline behind them and focus on a mostly upbeat earnings season to date. Next up is the largest American company by market cap, Exxon Mobil Corp. (XOM), which reported $1.85 earnings per share this morning vs. the $1.62 expected and $1.27 in the year ago period. It’s the largest quarterly profit for the oil giant since third quarter 2008.
Oil futures rose over the weekend amid fears that global supply will be disrupted due to the possible closing of the Suez Canal. Egyptian officials have maintained that traffic will continue to run smoothly, but the presence of the protests so close are sure to continue to cause uneasiness. The real firestorm in oil would come if, for any reason, the unrest from Egypt spilled over into oil-rich Saudi Arabia.
Playing Egypt
Keeping with the Egypt theme, Scott Redler of T3Live.com believes the situation could be a catalyst for gold and silver prices to recover after significant pull-backs. The fear trade is back on the table. Apache Corporation (APA) is an energy stock to watch on that front, as 20% of production and 30% of revenues come from Egypt, where the company and government have a 50/50 joint venture. APA was down more than 13% off recent highs at one point Friday before recovering slightly.
There have also been reports that rioting has and will continue to spread into Turkey. The Turkish stock market has been hammered on the news, and the decline accelerated harshly Friday. The iShares MSCI Turkey Index Fund (TUR) was down 7% Friday. Another ETF to watch for downside action is the SPDR S&P Emerging Middle East & Africa ETF (GAF).
Magnet: Watch AFOP After Near-Breakout Friday
Huge technical and psychological damage was done in Friday’s session. The advance-decline line was over 4 to 1 to the downside. From the NASDAQ losing its data feed to pictures of riots in Egypt, it became an issue of shoot first and ask questions later.
Interestingly, neither the SPX or OEX have even put in a column of O’s on Point & Figure charts, but they are close. It’s an overbought market from that stand point, but several Magnet stocks look closer to the “bottom of their envelop” than the top. Caution is warranted at this juncture even though the market should rally hard from this level, says Jordan Kimmel of T3Live.com. The hard part will be pinpointing where the leadership will come from.
The market and the economy are not always connected in the short term. Clearly US economic conditions are improving, including a strong jump in consumer spending. Although higher prices in the market are likely in the near (and several highly ranked Magnet stocks look strong still) most stocks follow the market and it looks like the current uncertainty will create more selling first.
Rather than look at what went down the most, an investor should look at what did not go down, or went down on lighter volume. A trader may look for the opposite for a reversion to the mean trade. Here are a few specific ideas to look at:
RPC, Inc. (RES) is one of the top ranked Magnet stocks and continues to hang in a tight consolidation pattern. The technical breakout would trigger above $18.
Crocs, Inc. (CROX) looks ready technically for upside after fading from highs in December.
Alliance Fiber Optic Products, Inc. (AFOP) tried going higher on Friday, but couldn’t hold up with the weak market. It should get going as the market repairs.
On the short side, Foster Wheeler AG (FWLT) got hit on Friday and could see more continuation to the downside.
Active Traders Watch IPOs Over Next Few Weeks
Short term active traders look to trade stocks that move quickly, and IPOs fit the bill, says Mike Lee of T3Live.com. Over the last year there have been several new issues that have provided tremendous opportunity for active traders, including Tesla Motors Inc (TSLA), JinkoSolar Holding Co., Ltd. (JKS), E Commerce China DangDang Inc (DANG, and Youku.com Inc (YOKU), among others.
Over the next year, lookout for a wave of ‘social’ IPOs from companies like Facebook and LinkedIn, which just last week filed a registration statement for a proposed offering. In the more immediate term, click here for a list of IPOs coming in the next couple weeks. Tune into the Virtual Trading Floor for more instruction and guidance on how to trade recent IPOs.
*DISCLOSURE: Scott has no positions. Mike has no positions. Jordan has no positions.
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