The market raced back to highs yesterday to kick off February, making Friday’s sharp decline now a distant memory. Friday there were no buyers in the market, and yesterday there were no sellers. It appears that Friday’s ‘dip’ got people enthusiastic about buying into the market again, and strong manufacturing data from yesterday’s ISM report added fuel to the fire. We closed through the psychological levels of 1300 in the S&P and 12,000 in the Dow.
If you had started leaning short or were looking for the right spot to re-enter yesterday, you could have turned to your retracement rules in the absence of levels. Once the market took back one-third of Friday’s down move, much of the potency of the move was negated, and once half the move was retraced, the move was invalidated from a composure perspective. The bulls have eased up off the gas this morning as futures are mostly flat.
Oil
Despite the market pulling in sharply at the end of last week, there were still several sectors that held in upper levels. Oil continues to push higher with the unrest in Egypt that is starting to spill over into the Middle East. Our favorite in group Schlumberger Limited (SLB) continues to hang near highs, while the largest market cap stock in the world, Exxon Mobil Corporation (XOM), surged 4.5% after tremendous earnings Monday.
Banks
It’s a case of the ‘haves and have-nots’ in the banking sector, with companies that reported strong earnings looking to break back to highs while those with disappointing reports set to break out of lower consolidations. Our favorites in the group (with one in each category) are Goldman Sachs Group Inc. (GS) and JP Morgan Chase & Co. (JPM).
Casinos: LVS Earnings Tomorrow
Casinos have been one of the leading groups during the economic recovery, and after a period of rest could be set for another move. The catalyst for a move could be earnings from Las Vegas Sands Corp. (LVS), which are due out after the close Thursday. Yesterday, Macau, the main growth driver for the casinos, reported higher than expected revenue growth for January of 33%.
The true leader in the group is Wynn Resorts International (WYNN), which saw its EPS estimates raised at Goldman yesterday and price target raised from $120 to $140 at BofA/Merril. While we feel LVS also can run, the average analyst price target says Wynn has more upside.
Agricultural Stocks
Over the last two weeks we have been bullish on the agricultural sector after a brief pull-back. Cargill’s announcement that it would divest its 64% stake in The Mosaic Company (MOS) was perceived as a potential sign of a top, but earnings and comments from management have reassured investors that the bullish story for the fertilizers remains intact.
PotashCorp./Saskatchewan (POT) has been the strongest in the group, but Mosaic is also close to breaking back to highs. Agrium Inc. (AGU) and CF Industries Holdings, Inc. (CF) have been a little but weaker but should make their way back to highs.
Apple Breaking Higher
Over the last few days, active traders have taken their focus off of big cap tech leaders because of sloppy charts and better opportunities out there, says Scott Redler of T3Live.com. But today it’s time to return focus to the cream of the crop, Apple Inc. (AAPL). AAPL has been extremely manic since the medical leave announcement from Steve Jobs.
Initially, the stock gapped down sharply (~5%) on the announcement, forecasting a bleak future without the company’s visionary leader. During the session, however, investors bought discounted shares aggressively, almost filling the gap. Then, a blockbuster earnings report opened AAPL back at the highs, but over the next three days the stock was sold aggressively back down to those Jobs-announcement reactionary lows. But since bouncing off that support level, the stock is once again charging back toward highs. If you didn’t follow all of that, I totally understand.
Today, AAPL is breaking back above the recent pivot around $345. Look for a move back to all-time highs near $349. The company has several revenue drivers on the table this year in the long-awaited Verizon iPhone and the iPad 2. Although Steve Jobs is certainly a genius and great leader, a company is more than just one man.
Disney Magic
The Walt Disney Company (DIS) had a strong day yesterday and is knocking on the door of new highs above resistance at $40. The stock consolidated in a tight range between $38.50 and $40 during January after making a strong run during Q4 2010. While this is slower mover than some other momentum breakout type trades, the set-up is too good to ignore. Look to buy the breakout, says Evan Lazarus of T3Live.com.
*DISCLOSURE: Scott has no positions. Marc is long DRYS. Evan has no positions.
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