US stock futures are starting to edge higher Monday morning after volatile action last week. The ~4% correction was healthy for the market, as many extended stocks worked off their overbought conditions. As has been a theme over the past 6 months, the market proved resilient, bouncing Wednesday and Thursday afternoons to avoid disaster before taking back a significant portion of losses Friday. The corrective action and dose of fear taken by the market should open up trading ranges and be a positive development for active traders.
Ags Can See More Upside After Reversal
There were many great reversal trades Wednesday, but none better than the agricultural stocks. The group saw heavy profit taking after a strong run, coming in hard as the market came under pressure. The stock we were watching most closely for clues about a possible reversal is group leader PotashCorp./Saskatchewan (POT), which produces around 20% of the world’s potash supplies.
For more market and stock commentary watch Scott Redler’s Daily Recap below.
When a strong market is getting hit hard, in the absence of firm technical support levels its often prudent to using moving averages as reference points to gauge strength. In this case, POT barely acknowledged its 21-day moving average as it raced down through it, but we had our eyes on the more significant 50-day. The stock gave a buy signal as it pierced down through that 50-day MA, and then rallied back above it. Others in the group like The Mosaic Company (MOS), CF Industries Holdings, Inc. (CF), and Agrium, Inc. (AGU) were hit a little harder, and there snap-backs were equally fierce. The sector should make new highs soon, helped on by the much awaited POT stock split that went into effect Friday.
Apple Points the Way
We also often use Apple Inc. (AAPL) as a barometer for the overall market, even though the company has its own story going on right with Steve Jobs’ health playing a role. Apple was hit hard Monday and Tuesday right smack dab into its 50-day moving average. A break below that $339 level seemed like it would take AAPL at least down to support around $326, and would have been a tough thing for the market to overcome. But AAPL fought hard to hold that 50-day line, bouncing off it three times before bouncing Friday back to near its 21-day moving average. Despite the volatile situation regarding Steve Jobs’ health, Apple still carries a low valuation and should go higher long-term.
Commodities In Focus
The political unrest in North Africa and the Middle East continues to loom over the market, even though it has been less prominent in the headlines. Oil remains the elephant in the room when it comes to the recovery, with increasing discussions about what an oil spike could mean for a US economic recovery. Historically, large oil price increases have triggered US recessions, and a steep rise could put the brakes on the recovery that is just now gaining some steam. Oil futures are currently trading around $97 per barrel.
While stock were getting hit last week, silver continued to be a monster. The metal benefiting from both speculation and increasing demand from the industrial sector, giving it an advantage over the purely speculative gold. After breaking out to new highs the Friday Feb 17, iShares Silver Trust ETF (SLV) extended higher before pulling back hard Thursday. But investors showed strong demand for silver as it took back all of those gains Friday, mostly overnight. Gold also had a strong week, but continues to underperform silver. The SPDR Gold Trust ETF (GLD) took back most of Thursday’s down move, and still looks good to get back to highs in the coming months.
*DISCLOSURE: Scott is long SPY, GLD
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