The market opened sharply lower and got an early flush before finding its footing at major support around 1295 in the S&P. Several negative headlines overseas sent foreign markets sliding overnight, and the US market followed that downward trajectory this morning. The S&P currently sits below the lower trendline of wedge that has been developing of the past three weeks, but we will wait for a definitive daily close below the range to confirm resolution of the pattern.
Ags Start to Pick Up the Pieces
There were some tense moments for stubborn longs early as the market teetered on the edge, but beaten down sectors bounced to help avert disaster. The agricultural stocks finally got a bounce after more weakness early. Like the marke, they opened lower and got hit early, but have started to enter their pre-market gaps after a dismal several days of action. The likes of The Mosaic Company (MOS) and Agrium, Inc. (AGU) held major support, while the weaker ones like CF Industries Holdings, Inc. (CF) and PotashCorp./Saskatchewan (POT) have started to climb back toward those breakdown levels. We will be watching this group for further upside action if the market can hold in.
Rare Earths Bounce
Over the last few weeks, it has felt like the shorts have had a strangle-hold on the rare earth stocks, as they have been unable to get a lift. More evidence of that theory came to light after the close yesterday following a stellar earnings report from group leader Molycorp, Inc. (MCP). MCP reported earnings (adjusted) of $0.03 vs. $-0.07 expected, and $21.7 million in revenues vs. $14 million expected. However, after an initial pop of more than 5% in the stock following the report, it drifted lower most of the night, openly only marginally higher this morning. An early flush rattled the nerves of MCP longs before the stock shook off that weakness. The stock has trended higher most of the day and is approaching the upper end of its range, dragging the rest of the sector higher with it. The strong earnings report should buoy the sector in the near-term.
JDS Uniphase Shakes Off Poor Finisar Outlook
On Tuesday after the close, optical networking company Finisar Corporation (FNSR) reported earnings in line with analyst estimates, but significantly lowered guidance, sending the stock into a tailspin. When the bell rang to open the market the following day, Finisar was down more than 37%, pulling the rest of the optical networking sector down with it. Among those affected was JDS Uniphase Corporation, which had gapped up 22% (and topped out 61% higher) after its own earnings report in early February. Yesterday the stock pushed higher early but came of hard to close in its earnings gap. However, we did not give up on JDSU as it seemed unfairly punished. Today, the stock has gotten that push we were looking for, up nearly 5%. We expect it to have more upside action if the market holds up.
Netflix Recovers
Yesterday Netflix, Inc. (NFLX) got hit after news that Facebook would start offering online streaming movie rentals, seen as a viable direct competitor to NFLX that many stubborn shorts have been warnings about. Today, however, it seems investors have decided that the Facebook service will not provide a major thorn in the side of Netflix’s business. NFLX has been strong all day, now up nearly 3%.
Right now, it is not prudent to be heavy in either direction, as the market figures out its next move. Much of the short trade was taken away overnight, and the bounce so far has been fairly feeble in the indices intraday. There have been some nice moves in individual stocks and sectors, but there are a lot of crosswinds still in the air. The scheduled “Day of Rage” in Saudi Arabia tomorrow so far seems to not be worrying investors too much as oil trades lower intraday. But headline risk remains large, and there will be better risk-reward opportunities in the coming days and weeks.
*DISCLOSURE: Scott Redler is long GLD; Short SPY, SLV. Marc Sperling is long POT, MCP, IPI,
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