With everyone looking to buy the dip in this market, it sure has been hard to locate one. Investors have continued to show a large risk appetite throughout this rally, and even at extended levels it’s a story of people wanting into this market.
Perhaps no better example is Apple Inc. (AAPL) which yesterday opened down 20 points after the company’s cult-like figure of a leader, CEO Steve Jobs, announced his third medical leave of absence from the company. In the past he has battled pancreatic cancer and had a liver transplant, which leads you to believe this medical situation is similarly serious. Apple has been an unstoppable force with consumers and in the stock market, and many have mooted the only thing that could crimp its growth would be the exit or passing of Jobs.
Yesterday, however, investors eagerly pounced on discounted shares, closing most of the pre-market gap during the session. Apple’s earnings report after the close rewarded their faith. The company often under-promises on earnings estimates, but regardless this was a mighty impressive quarter. They beat on nearly every level of the report, with headline earnings of $6.43 per share vs. $5.40 expected. Yesterday’s headline driven drop in AAPL’s stock price was certainly a buying opportunity after an over-emotional response to the announcement from Jobs.
Rare Earths Reverse Course
Rare Earth stocks were a boon for active for the better part of four months at the end of 2010, but have recently pulled-in to digest some large moves. The sector continues to remain almost entirely speculative, with Molycorp, Inc. (MCP) one of the only companies with actual earnings. However, with China cutting rare earth export quotas, these companies have ramped up mining preparation efforts in hopes of filling the void.
Although the rare earths may be a high-risk (and high reward) trade for long-term investors, they trade well technically and move quickly, both positives for active traders, says Scott Redler of T3Live.com. Yesterday, the two leading rare earth stocks, Rare Earth Resources Ltd (REE) and MCP, staged 80-20 reversals, which means that after several down days in a row they traded through the previous day’s low and back above it. When they crossed back above the previous day’s low, you could have bought them with a stop at the low of the day.
The reversals also tell Redler that rare earth stocks are ready to climb back toward highs once more. The strategy today would be to buy REE and MCP through Friday’s high if they get there, with stops at the low of the day today. Other stocks to watch in the rare earth sector are China Shen Zhou Mining & Resources Inc (SHZ) and Avalon Rare Earth Metals, Inc. (AVL).
Tuesday was an eventful day in the market, and when you start to see some more wacky action and volatility, it’s a prudent time to lighten up and trim positions. With the market overbought and earning news on the horizon, anything could happen the rest of the week. There are still stocks that are no as extended, see Redler’s daily Pricepoint Sheet for additional specific stock commentary.
In another note, Goldman Sachs Group Inc. (GS) is ticking down pre-market after a narrow beat on earnings and a narrow miss on revenues. After Citigroup Inc. (C) missed on earnings pre-market yesterday, it has been a somewhat difficult start to earnings season for the financials. However, with President Obama striking a more business-friendly tone after losing control of Congress, you have to believe the banks can recover and revert to the mean after being disproportionately beaten down during the economic crisis.
Magnet Investing: Solars, PWER Heating Up
The advance-decline line was flat yesterday during a wacky day in the market. As a market lesson, the idea of “buy the rumor, sell the news” works in reverse with bad news, and we saw that play out yesterday with Apple. Investors sold the rumor of Apple’s demise without Jobs and bought the stock after the announcement was out of the way and the market opened.
While many were focused on the big headlines with Apple, Jordan Kimmel of T3Live.com said he remained focused on his list of Magnet stocks with accelerating revenues and high growth. Despite possible distractions, you must remain committed to your own strategy to have long term success in the markets.
Yesterday we saw some solars heat back up after a few days of rest. The leader of the group, First Solar, Inc. (FSLR) surged nearly 6% back toward 52-week highs, while the Magnet solar, Chinese company ReneSola Ltd. (SOL), also jumped more than 6%. The resurgence of the solars once again illustrates the sector rotation we are seeing week after week. The rest stage of the bull market cycle is being skipped altogether.
Looking more specifically at positions, power solutions company Power-One, Inc. (PWER) set-off a technical buy signal after being on Kimmel’s list of highest ranked Magnet stocks. The stock has been trading choppily over the past couple of weeks, but looks to be working its way higher out of a wedge pattern.
Magic Software Enterprises Ltd. (MGIC) has been number one on my list for a couple of weeks now, as we have noted here. The stock broke out of a base Friday and continued to extend yesterday, although it failed on the breakout. The pull-back provides another opportunity for investors to potentially get back involved. Something positive to note was a volume spike on the breakout.
Other Magnet stocks to watch are metals and mining company Vale (VALE), which gapped up yesterday and is set to open higher again this morning. IDT Corporation (IDT) continues to look strong after breaking a month-long downtrend. The stock should test $30. Acacia Research Corporation (ACTG) is currently the number two ranked Magnet stock and should make a monster move above $30.
Don’t try to get cheeky looking for shorts at this point as this bull market rumbles on. Earnings continue to support the rally, and valuations remain very reasonable despite the precipitous run.
*DISCLOSURE: Scott is long REE, MCP, PWER; Short SPY. Jordan is long MGIC, LDK, SOL, IDT, VALE, ACTG, PWER.
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