The market has traded in a tight range intraday Wednesday after a huge morning gap up triggered by a slew of strong major earnings reports last night, mainly from tech giants. After two days of unconvincing action, earnings once again provided a boost like they have for much of the rally since March 2009 lows. The important thing to consider is the that the gap has not faded, but rather held strong, showing that investors believe in these higher prices.
After the up open, it was important not to chase stocks that were already extended but rather to look for other names that may still have juice left. In the extended category, you certainly had the Chinese Internet names SINA Corporation (SINA), Sohu.com, Inc. (SOHU), Baidu.com, Inc. (BIDU) and Youku.com, Inc. (YOKU). In the Morning Call, Scott Redler said to stay away from these names longs, and if you are feeling frisky perhaps look for a cash flow short. They are all negative on the day.
Rather than trying to chase extended stocks, Redler said to turn your attention to more big cap high beta tech names like Amazon.com, Inc. (AMZN) and Netflix, Inc. (NFLX). Big cap tech had a strong afternoon yesterday with good earnings from International Business Machines Corp. (IBM), Yahoo! Inc. (YHOO), and Intel Corporation (INTC) to name a few, and investors are growing more bullish on the sector. AMZN has been one of the strongest stocks on the board after a nice up open, currently about 3% higher on the day. After some early weakness, NFLX has also started to work. Both stocks look to have more upside to come, and it is a promising sign in these high beta names that the market is holding the gap firmly. Earnings from Apple Inc. (AAPL) will be another important key tonight for the group.
The fertilizer group, which was highlighted in the Morning Call as well, has not been quite as strong during the session. However, leader PotashCorp./Saskatchewan (POT) still looks good for higher prices as long as it holds above its moving averages, which it is currently doing.
Also worth a mention are the casinos, which have hold in well during the session after opening sharply higher following a jackpot quarter from group leader Wynn Resorts, Limited (WYNN). WYNN handily topped EPS and revenue estimates, and the future looks bright for the sector with continued growth in Macau and also several other international destinations. WYNN is on its highs, up 7.5% on the day.
*DISCLOSURE: Scott Redler is long REDF, GLD, AMZN, POT, LVS, MGM, OIH, CYD, BKS. Short SLV, SINA, QIHU.
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