Here we are, October 25th with two weeks of earnings reports in the bag. Many better than expected. 62% of companies are beating not only on EPS but on Revenue as well. Beating on EPS estimates can be done on cost cutting, but beating on revenue reflects an increase in business volume.
Even with all these good news the market traded in a range all of last week. We have not been able to pass S&P 1,100 and we are dancing around the DOW 10,000 level. Best of breed stocks have outperformed the market, a very good sign. By looking at price and volume charts of the major indices, it is possible to notice several days of institutional selling in recent weeks. Some of them however have occurred after a holiday, on option expiration day or were simply caused by monster volume in a few key stocks after the release of their earnings (look at Friday sell-off on the Nasdaq with high volume mainly due to MSFT). My point is that institutions are selling less than it appears.
We are now pretty confident that many businesses are doing well and the market always looks 6 months ahead. Money managers will buy any dip in the stock market and I would be shocked to see any correction larger than 5%. My advise is to continue to be long. On a technical side, if we break S&P 1,100 we go to 1,150 in no time.
LFT continues to outperform the market and this week showed some pretty good accumulation.
This week closing price was the highest in a year. LFT is only 6.5% below its 52-week high and I expect this stock to break-out ahead of its earning release on November 16%.
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Earnings from many benchmark companies are coming in better than expected. Tonight Apple and Texas Instruments reported numbers well above expectations, setting-up the major indices for a rally tomorrow. This market is moving higher even though volume is a little bit on the light side, a warning sign. However, I wouldn’t dare fighting the tape as it looks like we could easily move 5% or 6% higher from here. If money managers start chasing the market, we could go straight up as there is no much time left in the calendar year.
I am continuing to hold GS calls. The stock was neck to neck with AAPL in the race to the $200 mark. AAPL set a new all-time high in after-hours trading today above $204. I can see GS continuing to trade to the upside after reporting great earnings last week.
LFT is maintaining the $30 level. There is no much resistance left in the stock as the $32.94 high set a few months ago is the last target to reach. If the market continues to move higher, LFT will almost certainly take out that level. I am planning on holding my position until then and if I see a breakout above $33.04 in healthy volume I will hold even a little longer.
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The price/action of the last few days has been very positive. With the DOW Jones hitting a new high above 10,000 the market resumed its confirmed uptrend. Many important earning reports were better than expected with good improvements on both top and bottom line. We did see a little bit of “sell the news” type of reaction especially in names like INTC and GS.
Because of this picture, I started 3 new positions this week. A speculative one on Celgene, ticker CELG. They are set to report earnings next thursday. I am playing this event with out-of-the-money November $60 calls which already increased in value due to a small move up in the stock since I bought them.
I also initiated a new position in GS when the stock dipped to the $184 level which has acted as decent support over the last few days. With the numbers that Goldman reported I am looking at a price target of $200. The “sell the news” price/action is a great opportunity to establish a new position in GS.
Lastly, I established an aggressive position in LFT, Longtop Financial. This stock is working on a base-on-base price pattern. On Wednesday the stock moved up $1.61 in heavy volume and kept most of its gains in the next two sessions with yesterday decline happening in very low volume, a sign that institutions are holding onto the stock. If LFT shows more signs of accumulation next week, there is a very good chance that the stock can pass the $32.94 high set on the last attempted breakout on 8/10 which later failed. Bottom line, buy LFT above $30 if the stock gains in good volume and look for a breakout above the $33.04 level.
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I got stopped out of LFT this morning at $28.50 for an 8% loss, however the stock succesfully passed a test of the 10-week line and is rising from its lows in high volume. I bought in again at $26.50. This could be a very good sign if the uptrend holds. You can buy the stock in the 10-week line/new high range with a very tight stop.
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The market pulled back for the first time in 5 weeks interrupting a spectacular winning streak. This week’s action however was fairly positive. We had a tight weekly close and even if the see-saw action seemed volatile, we did not sell-off. That’s very encouraging, every stock needs to digest gains. The S&P has been dancing between the 992-1,012 level for the past few trading sessions and closed the week right at 1,004 which is in the middle of the range. Weekly volume on the index came in below average indicating that big money investors have not been dumping stocks. My outlook remains bullish and I am still expecting a 10%-15% move up before we really pull-back.
The trades I have in place have been working earlier in the week and appear to be a little bit under pressure now.
UTA released a strong earnings report, the stock opened the next day up 10% and closed down 10%. Not a good sign. That said the decline didn’t trigger my stop-loss so I continue to hold the position even if I am down $0.52 or 3.7% from my purchase point. Again UTA managed to hold the $13 level which can be considered strong support at this point. I hope to see tighter trading in the coming few days as I believe this stock will continue to rally in the next couple of months.
Longtop Financial pulled back from my purchase price as well and sits now at $29.71, up for the week but down just over 10% from the weekly high of $32.94. Volume on the downside however was below average which suggests that institutions have bought on the breakout and held their stocks during the rest of the week, while the retail investor bought a little too late, right at the $32-$33 level and sold nervously on thursday and friday.
Remeber, it is not important to be right all the time while trading. What is important is to be be able to capitalize on gains and cut losses short. Being right only of 50% of the time is good enough to generate healty profits.
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