future stock to watch

The large cap tech stocks have the NDX outperforming every other major index.  The easiest to be long and diversified among the very best names like AAPL, RIMM, AMZN, INTC and CSCO, is to own the QQQQ.

The QQQQ finally pushed through its moving average for the first time in weeks.  Considering the NASDAQ dropped over 2 just two days ago, the last two moves on the QQQQ are very encouraging.  Another strong ETF with a similar chart is the tech spider XLK.  You need to play both sides of the market, and technology is the place to be bullish.

today’s tape

Additional downgrades on the brokerage firms lowered the markets from the onset, but a stronger than expected GDP number helped stocks rally off of their lows.  In the end, we sold off into the close to finish mixed on the day.  Investors may have lightened their positions ahead of Bernanke’s Friday speaking engagement.  Every word he utters until the September meeting will be interpreted a thousand ways – which is why his actual words won’t matter, only the reaction.

For the third day in a row, the financials underperformed the broader market.  Lehman Brothers downgraded the entire investment banking sector, dropping most names over 1%.  They bounced off of their initial lows, but daily reports of additional subprime issues are killing this sector.  Also dropping were the banks and mortgage lenders.  FRE finished 5% lower on its earnings report.  Continue to stay away from these names.

There have been two main themes I keep mentioning as we tread through this tough market.  The main strategy has been to be long the NASDAQ and short the S&P 500.  This worked again today as the NASDAQ was up and the S&P 500 down.  But I have also been noting the out performance in the large cap tech stocks.  The NASDAQ 100 finished up .5% today, far better than both the full NASDAQ (.1%) and the Russell 2000 ( -.5%).

The NASDAQ 100 remains the strongest index because RIMM, AAPL, AMZN, CSCO and INTC have either avoided the massive sell off that hurt most stocks, or their recovery has been outstanding.    Other tech names like SIGM, SNDK, GRMN, JNPR and NVT  continue to shine.

Speaking of shinning, the solar companies gained about 4%, this time without the benefit of rising crude oil prices.  FSLR and JASO each traded above their normal volume and may be trying to break out for another long bullish run.

The infrastructure stocks are becoming interesting bullish plays again.   JEC, FWLT, MDR and MTW are worth keeping an eye on.  If investors can get past the credit issues and focus on the global growth story, these could duplicate their performance from earlier in the year.

The utilities dropped 1% as a whole today, after dropping about 3% as a group on Tuesday.  I’d stay away from this group at the moment.

Despite what the talking heads might say on CNBC, this market isn’t difficult to understand or navigate.  I’ve first provided the blueprint weeks ago.  Keep following it until further notice.

today’s tape

After the flurry of yesterday’s selling heading into the closing bell, the prospect of quick turnaround seemed dire. But the major indices pulled a complete reversal, recouping everything they lost yesterday.  Most impressive was the move in the final two hours.   The NASDAQ gained 38 points from 2 to 4 pm.

Overall, it was quite a session for the bulls.

Perhaps investors are already making their bets that the FED will cut interest rates at their September meeting.  Regardless, if you examine the past two trading sessions, the same pattern keeps emerging.  The brokerage firms got killed yesterday; today they barely moved higher (some even moved lower).   The tech names I keep mentioning held up rather well yesterday; and today they exploded higher.  Consider the following two day comparison of LEH, BSC, RIMM and AMZN.

No matter how the entire market moves, tech outperforms and the financials lag.  This is not new; and it may continue for weeks to come.
My assessment of the market’s near term future may be coming true.  As I posted last week, the markets may begin to trade in a tight range as the bulls and bears fight it out before the FED decision.

The price of crude oil was up almost 3% today.  It appears that traders begin to big up crude once it starts trading below the $70 level.   This helped boost oil stocks to some of their biggest one day gains of the year.  My favorite name is still SLB, almost back to a 52 week high.  I also like CAM and NOV.

After stumbling lower for a few weeks with oil below $70, the solar names all surged about 5% today.  At the moment LDK is the strongest.  SPWR is worth monitoring, also.

The basic resource and infrastructure names were some of today’s best performers.  The don’t have any exposure to the current credit mess and the global economic expansion is has not stopped.  Be selective in these groups.  Don’t pick beaten up names like CCJ.  Stick with stronger names like PKX and RIO.

I’d be lying if I said today’s market action didn’t surprise me.  But that’s why you should always find ways to play both sides of the market.  Stay long RIMM, CROX, AMZN, NILE, POT, UA, CMG, SLB.  All of these stocks have faired well against the current declining market.  And continue to short the financials, housing and lending stocks.  Just follow the price.

future stock to watch

Time to look for more stocks to short.  Here’s a construction services company that has turned over since the market crash: PCR.

PCR has typically rallied into the 30 day moving average, only to be faced with more severe selling.  It’s not difficult to find stocks that are ripe for shorting at the moment.

today’s tape

Soon after stocks rallied two weeks ago, once the FED cut the discount rate, everyone began indiscriminately telling investors to start buying stocks because the FED was coming to rescue.  All the while, I continued to caution against becoming overweight on the long side.  The major indices bounced from an extreme low – that’s all that happened.  We never saw any real strength outside of a few names.  And if you need to be reminded yet again, here is the chart of the S&P 500.

More trouble caused by the credit markets was the catalyst for the day’s 2% drop.  Merrill Lynch downgraded LEH, BSC and C, costing each 3.5 to 6% ; FMT dropped 12% after it Moody’s cut its rating on the lender’s debt; STT gave up 4% after it was reported they have over $20 billion of exposure in commercial paper.  The homebuilders dropped an average of 4%.  Last week, after TOL reported a decent quarter, as some stated, it now trades near another 52 week low.  If you aren’t short some of these groups, you are missing out.

The basic resource stocks were sent down again after rallying for days; tech had a very rough day; the agricultural stocks dropped 5%; the defense/aerospace names reversed after gaining yesterday.   Once again you cannot make a compelling case to be long this market.

The only saving grace was that volume was was still light, despite the magnitude of the loss.   But we ended at the lows of the session, as investors kept selling into the close.  That’s all that needs to be said, really.  I cautioned against becoming bullish (overall) on the market because the trends of the major indices were still down.  If you want to own something, it should be CROX RIMM, AMZN, or other stocks showing relative strength.  But short continues to be the smart play.

future stock to watch

The exchange stocks, once a very strong group, have started to over with the rest of the market.  CME and ICE (the two best) look like they are establishing lower highs and lower lows.  These stocks have been strong for months, but they may begin to trend lower. if the markets extend their declines  And if this group starts to fall as a whole, you can short NYX.

NYX can’t seem to reverse course.  It had a typical rally into its 30 day moving average last week.  Just another stock to play the downside if the markets continue to fall.

today’s tape

Volatility returned today as the markets opened lower, repaired the early losses and then sold off into the close.  Volume remains light.  Last week we had better than expected housing data boosting the homebuilding stocks.  Today, the housing data was weaker than expected.  And of course, I couldn’t care less about either of the reports.  The housing stocks are still drowning, many losing more than 5% today.

Also leading the way down were the brokerage firms.  LEH, GS, BSC, MS and MER are not finished going lower.  On these down days, staying short these names will provide an excellent way to protect and increase your capital. The banks and mortgage lenders continue to fall, as well.

Also taking a huge drop were the utilities.  FPL, ETR and other lost more than 3% on the day.  You can short names like NRG as the markets fall.

The best group was the defense/aerospace sector.  BEAV, HON and BA all gained on top of LMT rising 2.4%.  This group is still settling down before they regain their up trends or fall to lower levels.

The basic resource and infrastructure stocks finished with minor losses.  M&A activity may have helped these stocks as X bought some Canadian steel maker.  These names all rallied last week (some more than 10%), but their momentum may be slowed, especially if the markets start to decline.

Chinese equities continue to soar.  LFC, CHL, AC, BIDU – all names I have been mentioning lately – had tremendous gains, some over 15%.  After falling with the rest of the world’s, the FXI is now back to another 52 week high.  China remains the ultimate growth play.  You should be buying this strength, not selling it.

My estimation from last week – that we might get stuck in a trading range – may become true.  If this is the case, you can continue to make money so long as you follow the price trends.  The financials and housing related stocks are heading lower.  Most tech names are moving higher.  Trade appropriately.

today’s tape

With the equity markets showing strength, I am looking across all sectors for stocks that might indicate whether we are at the beginning of a turn around. One stock I will be monitoring is YHOO.

YHOO was trending lower months before the credit problems sent the markets down. Early this month YHOO bounced off the $23 support from last October. It rallied, came back to the $23 and has now bounced form this level again, gaining 2% today. If a terrible stock like YHOO can resist the urge to break below the $23 level to a new 52 week low, there may be some real bullish hope for this market. But as I keep mentioning, it would be nice to see strong volume accompany these moves higher.

today’s tape

The markets finished the week with additional gains as the major indices were propped up by Friday’s stronger than expected economic data.  But there is a double edged sword at play here.  If the forthcoming economic data remains robust amid the lending and housing crisis, the FED may resist the urge to lower rates.  Remember, the FED’s job isn’t to bail out the mortgage or stock market, or even prevent a recession.  It’s number one goal is to mitigate rising inflation.  And if the jobs report next Friday doesn’t reflect a strong decline in hiring, the FED may hold firm at 5.25%.  And because the Federal Funds futures market has already priced in a rate cut for September, a non rate cut at the meeting will be viewed as a de-facto tightening.

Volume was still very light even though the DOW broke above the 13,250 level.  It will now have to try and push above the 30 day moving average.  The markets have performed exceptionally well since the FED cut the discount rate one week ago.  I am somewhat surprised that the volatility has reduced.  We will see declines push this market down again, but I the moves may not be as dramatic.

Why do I keep cautioning against becoming too bullish?  It’s because most trends are still down.   I have been showing charts that have been rallying into their moving averages that look ready to fall again.  But let’s approach this from another angle. Here’s the MZZ – the inverse S&P500 midcap ETF.

Forget the fact that this is an inverse ETF.  If you were to show this chart to most traders they would consider the price action as a great set up for a bullish trade.  MZZ finally broke out of its down trend with strong volume and has eased back to its moving average before another potential run up.  The S&P 500 has (obviously) done the exact opposite.  We aren’t out of the woods yet.  You you cannot be all long.

And when the selling returns, the financials will probably lead the way.  Except for GS and LEH, the brokerage firms barely moved with today’s strong tape.  BSC, MER and MS only gained .4%.  GS and LEH had some catching up to do, and they are now all sitting right below their 30 day moving averages.

Continue to stay away from these names.

For the second straight day, the metal, mining and infrastructure stocks locked up impressive gains.  I’m still not in love with these groups, but names like MDR, BOOM, AKS, JEC and PKX are looking better.  Exposure to these groups should be both bullish and bearish.  For instance, own ACH and short ATI.

The oil stocks moved higher again as energy prices jumped about 2%.  The drillers remain the best ones to own.  SLB and NOV may be breaking out to new highs.  The refinery names, such as TSO and VLO, have retested their lows from two weeks ago and are moving higher again.

TSO has tested the $42.50 level twice and has now bounced up for a second time.  More importantly, TSO ended today’s session above the high from last week’s rally.  The refineries may be reversing.  When the fall again, they will have to establish a higher low from the $42.50 level to start trending higher again.

The tech sector had the best week of all.  Names like AAPL, EMC, NVDA, JNPR, RIMM, BIDU and GRMN surged higher and aren’t far from their 52 week highs.  (The same can’t be said for the financials).These are the stocks to own.

The markets appear to be approaching a neutral state.   I think the bulls and bears may struggle to push the markets in their favor, keeping us in a trading for the next few months.  But any major news that supports one side may break the tie.

future stock to watch

You would probably think, given the recent, dramatic sell-off in the market, that a issuing an IPO within the past couple of weeks wouldn’t be favorable for the company.  But when the IPO is the most anticipated since GOOG, you might understand why the stock has gained 38% percent in the first 9 days since becoming public.  Tech is the one area that is performing well, and that has also helped.

I don’t really know what VM Ware is, but people must think it’s the next best thing since slice bread (or maybe just Google) to send the stock higher given the current fragile sate of the market.  EMC holds about 90% of the shares, and we all know how well EMC has performed.  I don’t like taking a position in a stock without a log term trend in place, but VMW is showing great strength.