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| Dig deeper and everything’s not rosy for the market short-term. |
The market took a break over the weekend as futures point to a flat open this morning. Despite the market once again bouncing off support and remaining in the uptrend, the two-way action heated up last week with some leading stocks and sectors seeing some major technical damage. While the indices may not tell the whole story, there are some undercurrents that a correction could be in the cards this week.
The big headline at the beginning of last week was the medical leave announcement from Steve Jobs, which sent stock of Apple Inc. (AAPL) down more than 5% pre-market before hungry investors bought the dip furiously. The rebound continued into the close, and then accelerated with the company’s stellar Q1 earnings report. But despite a tremendous quarter across the board, nervous Apple investors took the move as a chance to take profits. The stock closed back near Tuesday’s reactionary low.
Another ominous sign came in response to Google, Inc. (GOOG) earnings, which also surpassed expectations. The company, however, announced that CEO Eric Schmidt would be stepping down into a lesser executive chairman role while co-founder Larry Page would assume the post. The stock opened at 52-week highs, but was sold off hard on Friday. Investors sold of two leading tech stocks after strong earnings reports, a sign that many are looking to take some profits after this most recent leg higher.
We remain in the thick of earnings season this week, as McDonald’s Corporation (MCD) gets set to kick things off before the open today along with oil giant Halliburton Co. (HAL). After the close look for earnings from American Express Co. (AXP) and Texas Instruments Inc. (TXN).
For more commentary on individual stocks, go to Scott Redler‘s daily Pricepoint Sheet.
Hard to Lean Long or Short Right Now
As the market remains extended, this earnings season is built for the active trader, says Evan Lazarus of T3Live.com It has taken blockbuster reports to push stocks higher at this level, and even the slightest miss (and some narrow beats) has been sold aggressively.
Two leading sectors that were hit especially hard last week were the agricultural and cloud computing stocks. The ags got hit after privately-held Cargill announced it would be selling its 64% stake in The Mosaic Company (MOS). The move was perceived as Cargill’s opinion that fertilizer stocks may be near a top, and the rest of the sector followed MOS to the downside.
It was deja vu for cloud stocks, which got crushed after F5 Networks, Inc. (FFIV) missed on revenues and revised down guidance for Q2. The last cloud debacle was a buying opportunity, but it remains to be seen whether momentum traders will continue to buy up stocks in this sector.
Financials have been a mixed bag, and the action has been very earnings driven within the sector. Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) have been the weakest in the group after weak reports, while other like Wells Fargo Company (WFC) and JP Morgan Chase & Co. (JPM) have been strong following strong reports.
With some of the heavy volume selling we saw last week, expect the action to at least remain choppy this week. Active traders would be best served to cut down risk and look for smaller trades while waiting for support areas to be more aggressive buyers.
Solars Continue to Lead Magnet List
The Dow, lead by General Electric Company (GE) and International Business Machines (IBM), masked the real weakness of the market last week, especially in the Nasdaq. Sometimes you can’t take the indices at face value, but you have to dig deeper to see the real story, says Jordan Kimmel of T3Live.com.
Formerly leading stocks were among the hardest hit, selling off on heavy volume after some news-driven worries. The back and forth action was not surprising, however, given the fact that this market has remained overbought for an extended period of time, says Kimmel. Each time it has been tested, the market has held the most shallow support at the uptrend line.
A ray of sunlight amidst the chaos was the solar group, which has started to act much more healthy after a sustained period of weakness last year. Several of them have been ranked very highly in the Magnet Investing system, but just only triggered as technical buys after breaking out of lower level consolidation area.
Combining fundamentals with technicals is the key to success and risk management, because it defines the area where you will get out of the trade if things go against you. Tiering in and out using ranges is also key; nobody buys the lows and sells the highs, except liars. Trying to do so just makes you inactive and you become a waiter and watcher instead of a money maker.
Lets look a couple of specific Magnet ideas for this week. RPC, Inc. (RES), a, Atlanta-based oilfield service provider and equipment maker, is getting ready to trigger a MACD buy after being a highly ranked Magnet stock for a few weeks.
Foster Wheeler AG (FWLT) has been one of the lowest-ranked Magnet stock, and Kimmel has been watching the technical action in hopes of timing a short. The stock is finally starting to roll over, and once investors become more aware of the companies decelerating earnings the stock could start to see some downside.
LDK Solar Co., Ltd. (LDK) tried hard to get back to highs last week, and Kimmel remains bullish on the prospects of this solar company after it revised guidance higher a couple weeks ago.
While Kimmel says he shortened his list of long holdings last week in the face of crosswinds, there was one stock that he added to his portfolio. OYO Geospace Corporation (OYOG), which designs and manufactures equipment used in acquiring seismic data, tried to reverse back to upside on Friday, and Kimmel will be looking for more upside to come.
Caution abounds after last week’s manic action, but that does not mean you should panic with positions. There is still money to be made if your money is in the right place.
*DISCLOSURE: Scott is long AAPL; Short SPY. Evan has no positions mentioned. Jordan is long LDK, SOL, RES, OYOG; Short FWLT.
This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.
