If you're an investor, continue to have a select focus on the strongest names on pullbacks rather than spreading yourself thin.
For most of 2013, if the market ticked down and you blinked, you missed the entirety of the "pullback." For the first time this year, there was finally a tradable short from Wednesday into Thursday morning. If you called in sick on Thursday, you missed the best opportunity this year to get a discount on stocks.
The S&P (INDEXSP:.INX) pulled in about 30 handles from the highs of the year, which stand around 1530. Friday the markets bounced probably a bit more than those hoping for lower prices would have wanted. World markets bounced back overnight led by a 2.4% move in Japan's Nikkei (INDEXNIKKEI:NI225). S&P futures are up six or seven handles pre-market, and we are safely back above the 8- and 21-day moving averages.
I would not rush to buy this up open. Instead I would prefer to let the market prove itself again and consolidate above these averages. If you covered on Thursday into the S&P's intermediate support, you do have the luxury to potentially test some shorts on this open. A close above 1518-1520 will have those who continue to play the roll-up short game a bit concerned.
We do have Fed Chairman Ben Bernanke speaking on Tuesday and Wednesday in front of Congress. His FOMC's Fed minutes played a part in last week's pullback. If he continues to strike a hawkish tone, it could once again spook the markets a bit. The Apple (NASDAQ:AAPL) Investor Day is Wednesday, and then the sequester comes into play on Friday.
Continue to have a select focus on the strongest names on pullbacks rather than spreading yourself thin. On Friday we talked about Google (NASDAQ:GOOG) and LinkedIn (NYSE:LNKD) as compelling candidates to buy on the dip, and they acted pretty well during the bounce. Netflix (NASDAQ:NFLX) was a bit weaker on Friday after some negative analyst commentary, but see how it acts after falling near its 21-day on Friday.
The 3D printing stocks have lost some of their luster, and will have to try to pick up the pieces again this morning after a weak earnings report from 3D Systems (NYSE:DDD) before the open. Those expecting a blowout quarter will be disappointed as DDD's growth rate decelerated a bit, which the stock can hardly afford at its current multiple. Despite a stock split going into effect today on DDD, the stock is down around 11% pre-market. Stratasys (NASDAQ:SSYS), which has been the weaker name in the sector up until today, is down around 6% on the DDD earnings news and set to open just below its 200-day moving average.
The fiscal cliff noise shook some individuals out of their macro plan late December 2012; don’t let the sequester noise shake it up this time. Thursday morning I stated my belief that there is an 80% probability that 1530 will not be the highs of the year. I still believe in my road to S&P 1700 by 2015, but we all approach that road differently. There will many spots to switch some gears using a tier system, and we will be on top of it every day in our Virtual Trading Floor(R).
Scott J. Redler is long BAC, GE, XHB, AAPL. Short SPY.