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| Banks have been strong in a weak tape today, a sign of better things to come? |
After gapping up just above the recent tight consolidation, the market is selling off during Wednesday’s session. Many of the high flying stocks we have seen run wild over the past few days are being reeled back in as the bears say “not so fast” to bulls hoping for an expedited move to new highs. For now the S&P is trading in the middle of that aforementioned multi-day base, and we will continue to watch both ends of the range for a confirmed move in either direction.
The big story yesterday was precious metals and related stocks, and this morning we got some follow-through to the upside before most pulled off. The strongest gold mining stock technically yesterday was Goldcorp, Inc. (GG), and it added to gains with momentum early before running out of steam. The stock is still up 1.8% on the day but may need some rest. On the silver side, leading miner yesterday was Coeur d’Alene Mines Corporation (CDE), and it has not held up as well as its golden counterpart. After opening higher and giving an initial thrust, CDE plummeted back to near yesterday’s breakout level. It is down more than 2% on the day.
The momentum apparel names that provided great trading opportunities over the past few days have also pulled in hard, which is not surprising given their dizzying run. Lululemon Athletica, inc. (LULU) and Under Armour, Inc. (UA) are down 1.9% and 3.1% respectively so far today. The newer name on the momentum scene in the apparel group may be Abercrombie & Fitch Co. (ANF) which has tacked on another 1.5% after gaining more than 10% yesterday following positive comments and raised price targets resulting from the company’s first ever analyst day.
In a twist of fate, a few sectors that have been relatively weak are actually holding up the best in this weak tape. The banks have finally started to perk up, as Scott Redler forecasted this morning on the T3Live.com Morning Call. JP Morgan Chase & Co. (JPM), the group leader, has broken above a key level and is holding higher. The stock should test highs above $48 over the next few weeks. Although we say only trade the leader in a lagging sector, Goldman Sachs Group Inc. (GS) is a special case. The company used to be the unquestioned leader among the banks, but after a weak quarter the stock has been mired in a downtrend in 2011. Trading breaks out of descending channels can provide great risk-reward, and that’s what we have with GS. With the stock poking its head above that downtrend line, look for Goldman to potentially get back to the $165 area over the next few weeks.
One of the weaker areas has been the oil service sector. The Oil Service HOLDRs ETF (OIH) had been consolidating in a upper level base over the past two weeks, and looked poised to be the next group to go in a sector-rotation driven market. However, the ETF has broken that range to the downside today and has hardly gotten a bounce intraday. The ETFs biggest component, Schlumberger Limited (SLB) has accelerated lower out of a mini-downtrend that has been developing over the past two weeks. It will be interesting to see how this group closes today, because if we can get a bounce back into the base for OIH, it could signal that the breakout may still come. If we get a close below, this becomes a broken sector for now.
*DISCLOSURE: Scott Redler is long AAPL, JPM, LVS, BAC, REE, JDSU, FCX, OIH, ROYL, V, ABX, LMT, GLD, LEI, MGM, JCP, XOM, AUY, MSFT, RBY, F, SSYS; Short SPY, VHC.
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