Futures are flat this morning after yesterday’s downside follow-through to Monday’s reversal. The enthusiasm Sunday night over the killing of Osama Bin Laden did not spill over into the markets. The indices were overbought so the corrective action there is not unhealthy or surprising, but the blue chip indices haven’t told the whole story over the past two days. Several momentum leaders have gotten crushed as investors have shown some risk aversion by moving into safer equity sectors (healthcare, utilities, telecom, banks). The S&P held Support 1 yesterday in the 1350 area, now use yesterday’s low as a point of reference.
The mantra of “sell in May and go away” is holding especially true within the momentum arena. Both domestic high fliers and hot foreign stocks were reeled in violently yesterday. You have to start with the Chinese Internet stocks, because they have been market leaders during the latest leg of the rally to new highs. Baidu.com, Inc. (BIDU) was the one traders were watching most closely because technically it was the most calculated short. The stock got extreme momentum to the downside before paring a portion of losses, ending the day down more than 5%. The damage in SINA Corpoartion (SINA), which closed on the lows down 9.5%. Sohu.com Inc. (SOHU) was down 8.5%. After extreme moves yesterday traders will not be immediately buying or re-shorting Chinese Internets, but they will be worth watching for future trades.
Watch the T3Live.com Morning Call below with Scott Redler and Alix Steel.
A group of the biggest domestic high fliers also were slammed yesterday as, again, investors take some risk off in these extended stocks. Apparel makers that momentum traders often focus on, Under Armour, Inc. (UA) and Lululemon Athletica, inc. (LULU) have started to deflate over the past few days. The drop in UA was initially triggered by mediocre earnings last week, with the stock down nearly 20% since the report. LULU had built a tight upper level flag, but rolled over in the last two trading days, down 7% in that time.
OpenTable Inc. (OPEN) was another bloated domestic stock that pulled in hard yesterday, but perhaps there was more to this story as earnings were last night. The stock was down 8% yesterday, and then sold off hard after a poor earnings report after the close. OPEN is down another 6% after hours.
Speaking of earnings last night, Las Vegas Sands Corp. (LVS) also reported, and like OPEN, the results were disastrous. The casino company reported a narrow revenues miss but a huge miss of EPS ($0.28 vs. $0.44 expected), and investors are heading for the exits. The stock was down as much as 13% after hours last night, but is starting to pare those losses pre-market this morning, currently down about 7.5%. Wynn Resorts, Limited (WYNN) also got hit on the LVS news, but is still hanging in its upper flag. WYNN is by far the best in breed, and we believe you can still trade this one long in the near future. Remember WYNN recently reported stellar earnings, so whatever problems that are crimping LVS have not as of yet hampered WYNN.
Apple Inc. (AAPL) is an interesting play right now in that 1) index rebalancing is over-> no more forced selling, and 2) yesterday in an extremely weak tape it held up well. AAPL, like the market this morning, is currently set to open flat, but will start to gain momentum if it can break out of the current descending channel. The technical buy price is around the $352 area for Apple, but this is a stock we definitely see going higher as long as the indices hold up reasonably well.
Another tech leader showing relative strength is Amazon.com, Inc. (AMZN), which broke out to new highs after its earnings conference call reflected a bright future for the company. Amazon’s entrance into the cloud computing game holds major promise for future growth, and based on the action it appears major players are snapping up shares. While its hard to chase AMZN up here, it certainly feels like it could go much higher from here. Technically, the measured move from the recent inverse head and shoulders pattern would take AMZN to around $220.
The other big story for traders yesterday was silver, which is finally cracking hard after a parabolic move. The iShares Silver Trust ETF (SLV) is down more than 15% off highs, selling off dramatically over the last two days (5.25% yesterday). Early this morning SLV was bouncing, but has turned down and is set to open lower again this morning. Some traders are starting to look for a bottom after this big sell-off, which has been in part triggered by increased margin requirements for silver from the CDE. Gold has sold off as well but is holding in much better, with the SPDR Gold Trust ETF (GLD) down only 2.5% from highs.
After a two-day pull in like this, it is best to be light in size and nimble in order to measure the complexion of the market and see what new leaders or dogs emerge. More weakness in high-flying momentum stocks could be further evidence that investors are taking risk off into the slow summer trading season.
*DISCLOSURE: Scott Redler is long SLV, AAPL, BAC, JPM.
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