The irrespressible market marches on this morning as the futures point to a higher open following an earnings beat by Alcoa to kick off earnings season. The aluminum giant earned 21 cents per share excluding special items vs. 19 cents per share consensus expectations, boosted by stronger aluminum prices and cost savings. They expect global demand for the metal to double by 2020.
The pre-market boost also follows gains in most foreign markets overnight despite lingering concerns about the European debt crisis and further flooding in Australia that threatens to crimp the emerging country’s near-term growth. American investors also seem to be shrugging off last week’s disappointing non-farm payrolls number. The drop in unemployment was also concerning to the trained eye as it suggests discouraged workers are leaving the labor force. While the report was indeed troubling, the results were not exactly as they seemed.
While the rest of this earnings week is quiet, the blockbuster reports will begin in earnest next week. Those results will determine the fate of the rally, according to Scott Redler of T3Live.com. The market has actually rested since the start of the year, but leading stocks continue to make moves. You can stick with tech leaders like Apple Inc. (AAPL), Netflix Inc. (NFLX), and F5 Networks Inc. (FFIV), says Redler. He also believes a more forgotten tech stock, Research in Motion (RIMM) has put in a reverse head and shoulders pattern that forecasts higher prices. Redler also likes the banks, casinos and agricultural stocks for significant upside over the next few months.
Also, congratulations to the Auburn Tigers for winning college football’s BCS National Championship over the Oregon Ducks. The game was not the high-scoring shootout many expected, but it came down to the wire with a last second field goal providing the margin of victory.
Chipotle Starting to Spoil?
Chipotle Mexican Grill (CMG) was a big winner in 2010, exploding through the previous high of $150 and going parabolic. The stock hit near $260 before pulling back in to its moving averages around $220. On the charts, this stock looks to have put in a topping pattern in the form of a bearish head and shoulders, says Evan Lazarus of T3Live.com.
The stock breached the neckline of that pattern and the moving averages late in December, and is now retesting those areas. The measured move would take Chipotle down to the $190 area, where the stock really exploded in October after earnings. Chipotle also carries a fairly lofty valuation and has its share of naysayers. The fast food-restaurant stock has a P/E of 43+ and a PEG ratio of nearly 2, and rising food input prices could eat into its margins in the future. While Lazarus says he has no real opinion on the long-term prospects of CMG, the technicals are forecasting a possible correction.
A Good Deal with Travelzoo
Travelzoo is a global internet media company that provides website users with travel and entertainment deals. The company has entered into the crowded group of second-movers looking to mimic the business model of Groupon, which felt secure enough to reject a $6 billion offer from Google late last year.
TZOO looks to be setting up a nice bull flag pattern between $41 and $46 with a potentially explosive entry area forthcoming, says Steve Levay of T3Live.com. He says he will look for a trigger long above the 52-week highs of $46.46, adding on a 5-minute close above that level to avoid getting caught in a break out failure. The key here is volume, says Levay, and if we get a spike the move could be sizable. If volume is muted on the breakout, the move could be more muted. The trade should take TZOO to near the $50 level.
Solar Group Heating Up
The advance-decline line straightened out throughout the day yesterday but the market is still stochastically overbought. It is not time to get complacent with positions at these levels, says Jordan Kimmel of T3Live.com. Traders should leave the macro economic debate to others and let the price action determine where they rotate their money. Right now it’s time to be patient and not chasing leading stocks through highs.
A sector that perked up considerably in the last week or so has been the solars. The sector got a big boost from blockbuster report by LDK Solar Co., Ltd. (LDK). LDK itself rose more than 20% after raising its guidance considerably, while dragging some others like ReneSola Ltd. (ADR) as much as 10% higher. LDK and SOL are the two that popped up on my Magnet stock selection system. Despite being somewhat overbought in the short term, these two solar stocks have plenty of room to run in the long-term as the world’s thirst for oil wanes.
Other current Magnet positions include Mesabi Trust (MSB), Foster Wheeler AG (FWLT), Magic Software Enterprises Ltd. (MGIC), Crocs, Inc. (CROX), and Power-One, Inc. (PWER).
*DISCLOSURE: Scott is long MGM, LVS, JASO, RIMM, BAC, C, LDK, SOLF, PWER, NFLX. Evan is short CMG. Steve has no relevant position. Jordan is long LVS, MSB, SOL, MGIC, TZOO and CROX.
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