It was an eventful week around the world as protesters raged in Egypt and bulls made it clear who’s in charge of this market. The market bounced Monday and then exploded back to the highs with a gap-and-go on Tuesday, the first trading day of February. Over the last year we have seen a trend of big jumps on the first day of the month, and that held true again. Last Friday’s sharp decline got everyone cautious, but with the strength this week, that sell-off has become a distant memory.
For active technical traders, it was important to follow retracement rules after Friday’s drop. The market quickly recovered a third of that down move (back through 1282-1285 in the S&P), negating much of its validity. When the S&P opened near 1288-1292 on Tuesday morning, more than half of Friday’s move had been retraced, thus completely negating its effect on short-term market composure. At that point, technical shorts should have been out of positions and bulls should have once again looked for buying opportunities.
Egypt Sparks Oil
Oil got a boost this week as the escalating violence in Egypt brought fears of supply disruption in the Suez Canal. Those fears have so far remained unrealized, but most of the oil group has continued to run as crude sets its sights on $100/barrel. Another strong sign for the sector was a stellar quarterly report from Exxon Mobil Corp. (XOM), which saw earnings of $1.85/share vs. the $1.62/share expected and $1.27/share in the year ago period.
Our fundamental favorite in the oil group, Schlumberger Limited (SLB), was actually showed relative weakness after breaking through highs Monday. Halliburton Company (HAL) continued to extend higher after its breakout last week.
Gold, Silver Find a Bottom
It had been a few weeks since Fed Chairmain Ben Bernanke raised the ire of central banking skeptics with talk of quantitative easing, but he did just that yesterday with comments suggesting QE3 could be on its way soon if the recovery stagnates. In the process, Helicopter Ben may just have triggered a short-term bottom for precious metals.
After hitting a four-month low last week, the SPDR Gold Trust ETF (GLD) held support around $129.25 yesterday and took off on Bernanke’s comments. Silver has been even stronger, with SLV closing the gap from early January and halfway back to the highs.
Apple Nearing New Highs
We talk about Apple Inc. (AAPL) a lot over at T3Live.com, because it is both an outstanding momentum trading vehicle and great long-term investing story. Technically speaking, the stock has been acting up since Steve Jobs third medical leave announcement, but this week started to regain its footing. I guess rumors of Apple’s demise were greatly exaggerated.
We highlighted a compelling technical set-up in Apple on Wednesday, and the stock has pushed through that recent pivot area today. Expect it to get back above recent highs near $349 next week. In addition to having a great technical set-up, the company remains grossly undervalued with a PEG ratio of 0.71. The median analyst price target is $425 with a high of $550.
Cloud Stocks Get a Bounce
Earnings in the cloud computing sector are turning out to be a volatile proposition. The slightest hole in a report can trigger a dramatic sell-off like we saw October 6 after Equinix, Inc. (EQIX) lowered outlooks and
January 19th when F5 Networks, Inc. (FFIV) missed on revenues and trimmed guidance. Back in the fall, the return to favor was swift for the sector, but there had been more hesitation this time around until Acme Packet, Inc. (APKT) lifted cloud stocks with a stellar report. FFIV, which was Evan Lazarus’ play of the day long Thursday morning, has broken back up into its large earnings gap, up nearly 15% in the last three days.
Debate Rages on China MediaExpress (CCME)
China MediaExpress Holdings, Inc. (CCME) has been a hot topic in the market this week, with two feuding camps arguing about whether the company is fraudulent. The fraud case was first argued by little known Citron Research, and a bigger player stepped in their corner yesterday when Muddy Waters, the company that outed RINO International Corp. (RINO), issued a report with a price target for CCME at $5.26.
Earlier in the week, we expressed our view that CCME does not appear to be a fraud based on the fact that Deloitte is the auditor and the CFO, a former PriceWaterhouse Coopers accountant, just bought $1.5 million in stock. But when the prevailing winds are negative, it is not worth it to try to be a hero. The stock got smacked yesterday, but today has bounced back more than 26%.
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Overall, it was another week, another display of resiliency from this market. The rally remains extended, and dip buyers had to be quick, bold, and decisive to get cheap shares after Friday’s washout. Although the market continues to run higher, there is still a feeling of fragility for some in this market.
Bernanke said in his comments yesterday that he is responsible for higher stock prices, but not necessarily for sky rocketing global food prices. Well, you can’t have it both ways Ben. By propping up asset prices when economic data doesn’t match the ferocity of the stock market rally, the Fed is potentially creating another bubble of sorts.
Just look at today’s non-farm payrolls number: there was a gain of only 36,000 jobs when 140,000 were expected. Also, unemployment fell to 9.0% a positive sign for the lay-man, but an ominous sign for the more keen eye. Nine-hundred thousand discouraged job-hunters left the labor force this month, after 500,000 left in the previous month. It’s hard to see optimism in the stock market continue unabated while so many Americans remain jobless.
But so goes today’s market. It is not our job to be right about economics or politics, it is our job to trade the price action. Right now, the composure of the market remains very bullish, but a correction will come at some juncture. Continue to watch the technical signs to be prepared to get out of harm’s way when that day comes.
*DISCLOSURE: Scott is long AAPL
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