The market has started to rally late Thursday morning after a gap down and early weakness during the session. The S&P opened well below the 21-day moving average, which had been acting a support, but it would take a definitive close below for that development to be most meaningful. Bulls are having a tough time gaining traction after this most recent technical pull-back, but there could also be some forces at work with agendas ahead of options expiration tomorrow.
From the Morning Call, the Chinese Internet stocks are once again leading the market, with varying degrees of strength. The strongest by far among them today has been SINA Corporation (SINA), which tipped showed its hand a bit yesterday with a close just below highs. The stock surged early and has barely pulled in, currently up nearly 3% on the day. Sohu.com, Inc. (SOHU) was very strong early, rocketing to the top end of its range but failing on the breakout. Since that failure, the stock has continued sharply lower, currently down more than 1% on the day.
Look to see if SOHU holds up in its upper base, and it could still be a good breakout candidate when the market catches a bid. Baidu.com, Inc. (BIDU) falls somewhere in the middle, and is basically flat on the day. The move looked to be over in BIDU before yesterday’s strong bounce showed resilience.
The casinos have been unable to really build on yesterday’s big move, with the exception of MGM Resorts International (MGM), which was the catalyst for the sector’s jump. The company announced it would be taking a majority stake in an IPO for a new Macau joint venture that should give the usually third-best casino company greater exposure to the booming gaming zone in Asia. The stock has pulled in after early strength and is up more than 1% on the day. Once the market begins to perk up, leader Wynn Resorts, Limited (WYNN) should be a great breakout candidate.
Retail stocks have been underwhelming today after two-days of relative strength in a weak tape. The two momentum apparel stocks we list often, Under Armour, Inc. (UA) and Lululemon Athletica, inc. (LULU), are down 2% and 1.3%, respectively, but remain firmly in upper bases. Like WYNN and the Chinese Internets, these will be two stocks we turn to for breakouts if the market bounces with conviction.
Finally, things have gone from bad to worse for the banks today. The fact that JP Morgan Chase & Co. (JPM)’s solid earnings report couldn’t provide the sector with a boost was evidence the group remains in the doghouse. JPM and the other banks traded lower after a gap up yesterday, and have accelerated to the downside this morning after Goldman Sachs Group Inc. (GS) actually came out with a downgrade of the entire sector. Goldman was also accused by Senator Carl Levin of misleading clients in regards to mortgage CDOs, even going further to accuse CEO Lloyd Blankfein of perjury. JPM and GS are both down about 2.7%, Wells Fargo & Company (WFC) is down 1.5%, Citigroup Inc. (C) 2.2%, and Bank of America Corp. (BAC) 0.5% as investors wait for earnings to pass judgement.
*DISCLOSURE: Scott Redler is long SPY, POT, SOHU, MGM, BBBY, GLD.
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