The year 2011 started with a bang as markets leapt out of the gates with the Nasdaq Composite taking leadership starting the year with a 1.46% gain. The Santa Claus rally is typically seen as extending until January 7th so the market is still in the sweet spot where it has gained aggressively by historical pattern. The rally yesterday was broad-based with all sectors trading up for the day and despite minor selling in some stocks late in the day, the Dow Jones closed up a solid 93 points for the first trading day of the year.
Market leaders doing their job: leading
The regular market leaders, Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN) broke out to new all-time highs. This action can only be seen as a sign of strength and health. In the year 2010’s perennially-hot cloud computing space, the leader in virtualization, VMWare, Inc. (VMW), and its data storage leader parent company, EMC Corporation (EMC) both tagged new 52-week highs on the session.
Other favorites from 2010 are presenting buy areas on their recent pull-ins according to Scott Redler of T3Live.com as highlighted in his daily Pricepoint Sheet. Notably, Redler is targeting Netflix, Inc. (NFLX) for a buy at $181-182 and Baidu.com, Inc. ADR (BIDU) for a possible purchase if it trades through $100.45.
Financial sector awakens
The real story of yesterday was the financials as the Financial Select Sector SPDR ETF (XLF) surged 2.19% outpacing the rest of the market. The typical leader in the sector, Goldman Sachs Group, Inc. (GS) gained 2.91% and Marc Sperling of T3Live.com sees no technical resistance until $180, another $7 higher. Bank of America Corporation (BAC) vaulted 6.37% and will be challenging its 200-day simple moving average at $14.34, a widely-watched technical level.
The insurance group was particularly strong within the financial sector and may be worth a look for the trading community. Prudential Financial, Inc. (PRU) and Hartford Financial Services (HIG) powered ahead 3.37% and 4.83%, respectively.
Rare earth stocks still in play
If you’re an active trader and you’re not at least watching the rare earth sector, then you are not doing your job properly, says Sperling. These key stocks have been offering wild volatility for traders in recent weeks and thus great opportunity. Yesterday’s action was a case in point.
Sector leader, Molycorp, Inc. (MCP) skyrocketed 15.23% higher. Two smaller firms in the group jumped as well with Rare Element Resources Ltd. (REE) adding 6.85% and Avalon Rare Metals Inc. (AVL) mounting an astounding 25.48% advance. These stocks are in play!
Market is healthy but be disciplined
Jordan Kimmel of T3Live.com believes the market is very healthy from a look at the internals but buying into extended moves can always be dangerous. In order to keep yourself out of harm’s way, traders must have the discipline to keep stop losses tight and stay on top of the action. Kimmel always uses a 20% peak-to-trough stop loss. To add to this, Evan Lazarus of T3Live.com points out a possible short-term bullish pattern in the VIX Index which could imply an impending sell-off in the market. He advises traders to watch the 18.5% level which is currently acting as resistance.
Using his proprietary Magnet Stock Selection Process Kimmel sees long opportunities in Mesabi Trust (MSB), Vale ADR (VALE), iGATE Corporation (IGTE), MIPS Technologies, Inc. (MIPS), Magic Software Enterprises Ltd. (MGIC) and Puda Coal, Inc. (PUDA).
*DISCLOSURE: Marc Sperling is long BAC, AVL, REE, MCP, AAPL, VMW and short SPY. Scott Redler is long BAC, AVL, AAPL, GS and short SPY. Jordan Kimmel is long MSB, VALE, IGTE, MIPS, MGIC and PUDA.
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