The market staged a nice reversal yesterday off of the prior break out level. Most high beta tech stocks closed near their highs, giving some traders, including me, a green light to take more risk. But after the bell yesterday Cisco Systems, Inc. (Nasdaq:CSCO) threw a wrench into those plans.
Cisco beat on earnings by 2 cents, but disappointed with guidance and is down around 17% this morning. The networking giant’s poor report also triggered weakness in the broader market, as futures are pointing modestly lower this morning. Other tech bellwethers reported very strong earnings and guidance this Q3 earnings season, so many believe that the problems with Cisco could be company specific. The real concern, however, lies in the fact that Cisco’s fiscal quarter ended in October, a month later than most companies which follow a calendar quarter. This fact is causing some concern that a spending slowdown may have begun in October, which is causing some anxiety over Q4 earnings.
Today is one of those days where you need to see if they can take anything green. Can some stocks shrug off concerns over the CSCO report and push higher, or does today turn into a trend down day? You will see that if they can’t take leading stocks positive or any groups positive. Perhaps watch some of the lagging groups; see if money rotates into oil or maybe banks.
I am long Baidu.com, Inc. (Nasdaq:BIDU), Netflix, Inc. (Nasdaq:NFLX), Apple Inc. (Nasdaq:AAPL), Level 3 Communications, Inc. (Nasdaq:LVLT), Alcoa, Inc. (NYSE:AA) and Bank of America Corp (NYSE:BAC) as of the open this morning. The way I will approach it is I will see if I can add some and then take off some risk if they can close some of the downside gap. If some stocks go green and hold positive, then I will look to put on some more aggressive long trades. If we can get some leadership from leading stocks today won’t be so bad. Watch yesterday’s low in S&P at 1204, further support would be 1197-1202, and then major support is 1188-1192.
*Disclosure: Long AAPL, BIDU, NFLX, LVLT, AA, BAC
