US stock futures are set for a significantly lower open Thursday, below the 21-day moving average that has been acting as support during this most recent pull-back. The rally back toward highs simply ran out of steam starting late last week as investors remain cautious with a lot of uncertainty in several areas of the world. The US government narrowly avoided a shutdown over budget differences, and spending cuts could hamper the still fragile US recovery. The next, and more important, debate will be over the debt ceiling. Pressure is mounting on the Fed to adopt a more hawkish stance as inflation rears its head around the world. And in Japan, the nuclear crisis has taken a turn for the worst, being categorized on the same level as Chernobyl.
Despite another weak tape yesterday, some momentum stocks saw some money rotate in, which is usually a bullish sign. Once again leading the tech sector were the hot Chinese internet stocks, SINA Corporation (SINA), Sohu.com, Inc. (SOHU), and Baidu.com, Inc. (BIDU). Investors are hungry for shares of these influential new companies in the fast-growing Chinese market. All are set to open lower this morning with the rest of the market, but yesterday’s bounce have put them firmly in the middle of upper bases. If the market catches a bid these should be among the strongest names.
Watch the Morning Call video with Jordan Kimmel and Alix Steel (below).
The strongest pocket of the market yesterday was the casino group, which was dragged higher based on news on MGM Resorts International (MGM). Yesterday the company announced a plan for an IPO its Macau joint venture in which they will be the majority owner. MGM had lagged behind Las Vegas Sands Corp. (LVS) and Wynn Resorts, Limited (WYNN) because it has less exposure to Macau, but they seem to be leveling the playing field a bit with this new venture. LVS has perhaps the most discounted right now after a weak Q4 2010, but WYNN remains by far the most attractive for active traders and investors. WYNN has put in an upper level base and is nearing the top end of that range, so keep this one FIRMLY on your radar today for a breakout if the market catches a bid.
In the retail space, Under Armour, Inc. (UA) looks to be acting the strongest. Back on April 1 UA broke out with great volume and wide range bar, something that we like to see. UA extended for a couple days before pulling back in a bit. However, the stock has been able to surge higher over the last three days while the market has been weak. Since UA easily held its breakout level and is showing relative strength, there is certainly evidence to suggest higher prices are in the cards. Traders may look to add some small size here and add closer to the momentum breakout above $76.85.
The banking sector remains a huge drag after yesterday’s lukewarm earnings report yesterday from JP Morgan Chase & Co. (JPM). The company bested earnings per share estimates but came light on revenues. Bank of America Corp. (BAC), the most exposed to the mortgage and foreclosure ills, will be the next up to bat Friday before the open. Perhaps the biggest news from the sector this morning is accusations hurled towards Goldman Sachs Group Inc. (GS) following months of testimony in front of Congress last year. Senator Carl Levin, releasing the findings of a tw0-year inquiry, says that the panel believes GS misled clients about CDOs it sold to clients. He Also believes Goldmas CEO Lloyd Blankfein and other employees should face perjury charges. The banks are an avoid for now, but at some point in time it will pay to have them on the radar as catch-up, reversion to the mean trades.
*DISCLOSURE: Jordan Kimmel is long JO, JVA, RES, IDT, SLW, MCZ, SRZ, SMTC, ACAD, REED, GRRF, NVMI, FFHL, COOL, WSTL, ROYL, TORM, SCLN, BSQR, ASYS, CROX.
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