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business newsMinyanville's T3 Morning Call: Oil Catching Fire
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T3Live.com Jan 12, 2011 8:45 am
A focus today for traders should be oil stocks: Halliburton is a laggard that should make it back to highs in the next couple weeks while Devon Energy is one of the stronger stocks.
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Stock futures are pointing to a higher open this morning, tracking gains in the European markets following a successful bond auction in troubled Portugal. The market remains overbought with hardly a downtick since the start of December. While we have seen a tight range of indecision to start the year in the market, this morning's open is further proof that you shouldn't doubt this rally. Stock selection has been key as the indices have traded in a tight range. The Fed is also set to release its latest Beige Book on economic conditions at 2 p.m. EST.
The market has looked poised to break down for a pullback several times, but has rebounded each time to frustrate bears. We have seen very clear sector rotation during the latter part of this rally, and it now looks to be coming back around. Typically you see lagging sectors perk up, like the solars and second-tier banks, as a sign that a short-term top is imminent, but the pullback stage of that cycle looks to have been skipped altogether. We are seeing commodities and leading big-cap tech reassert themselves as the leaders of this market.
Oil Catching Fire
A focus today for traders should be the oil stocks, says Marc Sperling of T3Live.com. Halliburton Company (HAL) is a laggard in the sector that should make it back to highs over the next couple weeks. Devon Energy Corporation (DVN) is one of the stronger stocks in the group and broke out to new highs yesterday. After a potent green bar yesterday, Sperling says DVN should see more upside, but you should be patient and possibly wait for a more calculated entry. Anadarko Petroleum Corporation (APC) falls in the middle of those two and is close to testing highs. It could be the one to watch today for a possible breakout. BP (BP) is always worth watching, too, especially if it can get near to a breakout above $47.
Pockets of Strength
Rotation should also continue in the high beta tech group, as we have seen stocks like Netflix Inc (NFLX) break out of long-term consolidations in the last two days. Sperling feels Netflix should easily get back to $195, and then ultimately new highs. Baidu.com, Inc. (BIDU) is one that has lagged of late and could play some catch-up. Sperling also like salesforce.com, inc. (CRM) above $144. The ags have been resting, but look to buy any significant pullback in that group, says Sperling. Solars continue to look bullish after LDK Solar (LDK) raised guidance two days ago, triggering big moves in the sector. With a few days of digestion, look for them to trend higher. First Solar, Inc. (FSLR) is the leader to watch. Another name to watch is Lululemon Athletica inc. (LULU), which is trading nearly 9% higher overnight after the popular yoga-apparel maker raised guidance. The stock is near highs and Sperling feels it will break out at some point. Research in Motion Limited (RIMM) also looks set to continue its resurgence as it approaches highs.
Cry Me a Digital River
Digital River, Inc. (DRIV) provides outsourced e-commerce solutions to assist companies in establishing and managing an online sales channel. After a large volume sell-off in mid December, Digital River has formed what appears to be a bear flag, which has given us a slower retracement back to an area of prior resistance above $36.
For traders looking for a good short in this market, Evan Lazarus of T3Live.com feels traders can look to enter Digital River short on a break of yesterday's low of $36.38 with a tight stop around $37.25. Lazarus is looking for a move down to $34 as a first target and $32 as the next potential profit target.
Don't Let Overbought Market Scare You
The advance-decline line is back to a more favorable position with almost no new lows. An overbought market makes things tricky in the short term, but bull markets can remain that way for extended periods, says Jordan Kimmel of T3Live.com. The early afternoon sell-off made a lot of charts look hard to hold but then another rally in the late afternoon washed away those premature concerns.
The IBD 85/85 index is a list of stocks that have both an earnings-per-share rating and relative strength rating above 85. Historically, stocks have made their biggest moves when those conditions are present, evidenced by the fact that the 85/85 index has outperformed since its inception. The number of 85/85 stocks on IBD has expanded, telling Kimmel that there are a lot of great opportunities out there for investors right now.
The main thing is not to argue with the market. While the economic recovery may be slow and fragile, it is not a trader's job to have opinions about such things. It is a trader's or investor's job to read the price action of the market and make decisions that will yield alpha. That is not to say we should get complacent as this rally rumbles on. Don't chase stocks, no matter how much you like them, says Kimmel.
In today's video, Kimmel takes a look at his favorite Magnet Investing positions right now: Travelzoo Inc. (TZOO), Ebix, Inc. (EBIX), Spreadtrum Communications, Inc. (SPRD), Mesabi Trust (MSB), and Amtech Systems, Inc. (ASYS).
Check out T3Live.com's Virtual Trading Floor to follow these traders and their live portfolios on real-time throughout the day! Take a free trial.
Marc is long NFLX, C, BP. Evan has no relevant positions. Jordan is long MSB, SPRD, TZOO, ASYS, EBIX.
