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| Obama looked rather Presidential at the annual State of the Union address, where we saw a welcome return to civility. |
US stock futures are pushing higher Wednesday after President Obama struck a markedly pro-business tone in the annual State of the Union address. The President called for greater spending on research and development, especially in the clean energy sector, as well as corporate tax cuts to make the US jobs more attractive to companies currently shipping jobs abroad. Obama also talked at length about the need to reduce the budget deficit, calling for a five-year freeze on domestic discretionary spending, which pushed the dollar higher.
We continue to rumble through earnings season with a slew of notable reports on the docket. Last night Yahoo Inc. (YHOO) forecast revenue below Wall St expectations, and the stock is trading nearly 3% lower this morning. Two announcements to look forward to before the open today are The Boeing Company (BA) and ConocoPhillips (COP). Action in the oil names will be interesting today after Obama made a point of saying he will eliminate US taxpayer dollars subsidizing big oil companies. Watch for Netflix, Inc. (NFLX) earnings after the close.
On the data front, New Home Sales will be reported at 10 am ET, while the Fed will make its latest rate announcement at 2:15 pm ET. The FOMC is expected to keep rates unchanged and maintain extremely dovish language in its letter. While China has one eye on raising rates due to inflation heating up, the US Central Bank has so far shown no indication it will consider raising rates anytime soon.
The technical action in the market has been very choppy of late, but the indices continue to make new highs. Investors carrying a portfolio of momentum growth stocks are wondering why there portfolios are getting hit as the market inches higher, but it’s because we’ve seen an interesting rotation of capital. As older more conservative investors pull their money from low-yielding bond and money market funds, they want to buy equities, but not high-risk momentum equities. Rather, they prefer to put their money into mega-cap dividend type stocks to generate income, many of which are also methodical recovery plays. We have seen those stocks outperform over the last week, with examples being The Home Depot, Inc. (HD), Wal-Mart Stores, Inc. (WMT) and General Electric (GE).
Microsoft Attractive On Multiple Fronts
Microsoft Corporation (MSFT) is a very attractive play right now for multiple reasons, says Scott Redler of T3Live.com. While Microsoft is not the high growth monster it used to be, it remains an interesting proposition for more conservative investors who also crave some upside. Something else to consider is that Microsoft also now pays a 2.5% dividend, just below the yield on the 10-year treasury note. A great value play, solid growth prospects and a healthy dividend, certainly an attractive proposition for a retiring baby boomer.
On a technical basis, MSFT also looks attractive after a recent upper level consolidation. The stock has traded in a tight range between $28 and $29, and with a break above the recent high of $28.85 could definitely make it back to 2010 highs near $32. The company has earnings after the close Thursday.
For more specific stock commentary, check out Scott Redler’s daily Pricepoint Sheet.
Low Ranked Magnet Stocks Starting to Roll Over
Tuesday the market was back to a 2 to 1 negative advance-decline line, following 2 to 1 positive line on Monday. The T3Live community has done a terrific job spotting the engine smoking under the hood as the market continues to act erratic. While the manic action and select weakness is not going to make me hands off in this market, it will keep me from chasing extended stocks, especially into earnings as we have seen decent earnings get sold off because they weren’t a home run.
Be careful and make sure you are there to trade another day. If any position is concerning you, remove it or reduce it. Everybody needs to think in terms of risk management and stops in this ‘stairs up, elevator down market’, says Jordan Kimmel of T3Live.com. He likes to limit losses to 2% of his account per position, but that is an extreme loss and should not happen more than once a year. Dogs bark before they bite; in the market that usually means downside volume or breaks in 50 day and 200 day MA’s.
Let’s take a look at a few of the stocks currently ranked highly in Jordan’s Magnet Stock Selection system.
Foster Wheeler AG (FWLT) on the short side has been frustrating, as its often hard to time shorts based on a fundamental basis. You need to have patience to wait for the rollover, so Jordan says he will remain in light size before he gets confirmation of weakness in FWLT.
International Game Technology (IGT) is another low ranked Magnet, Jordan is looking at just to provide some balance to the portfolio. The stock is rolling over following a run up, and with decelerating revenues it should come back to earth in the near future.
On the long side, Power-One, Inc. (PWER) was weak yesterday, but remains within the recent range. If it holds the lower trendline of the base, it looks good for higher prices.
RPC, Inc. (RES) is one of the top ranked Magnet stocks and is seeing all the technicals turning up.
Good Technical Set-ups Hard to Find
For active technical traders there is currently a dearth of great chart set-ups to get excited about after some sloppy actions in the chart. Evan Lazarus of T3Live.com says the sloppy, unattractive charts a sign to be cautious.
One chart that does present a good risk-reward ratio is transportation services company YRC Worldwide Inc. (YRCW), which broke out above prior resistance at $4.10 towards the end of the day on about 400% average voulme. Despite a huge move yesterday, Evan feels the stock should see some upside follow-through after getting hit hard for the last few years. The next resistance area for the stock is $4.90 to $5.40.
*DISCLOSURE: Scott is long MSFT, PWER; Short SPY. Evan is long TZA. Jordan is long PWER, RES; Short FWLT, IGT.
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