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Earnings Season Magnifies Divergences (Morning Call)

Scott Redler
Jan 21, 2014, 9:15 AM

There are some green arrows around the world as we enter a holiday-shortened earnings-filled week. Europe is up small, the Nikkei snapped a three-day losing streak to finish up 0.90% and the Shanghai closed up 0.86% after the PBOC injected funds straight into some banks to ease some credit fears that remain a topic.

S&P futures are up 5-6 handles as the uptrend remains intact with a ton of movement both positive and negative under the surface. As long as we are stay above the 8- and 21-day moving averages that stand at 1839 & 1830, respectively, I’d try and to keep short off the brain. Pivot resistance stands at 1850.

Remember, during earnings season stocks can pop or drop 20-40 points, so make sure you know what you own and why, as it can be a dangerous few weeks, but also provides a lot of opportunity. I tend to not take stock into earnings, I used options if I have a strong feeling as risk is premium paid.

Notable earnings to watch today: IBM, JNJ, DAL, VZ, TXN, BHI, CREE, AMD, TRV, AMTD.

Today we will check the temperature of some key sectors.

The Nasdaq ETF (QQQ) finished down 0.57% on Friday, retesting the 8-day EMA. Use this key moving average as the key short-term support to watch. A break and close below this could lead to some additional selling pressure. The 21-day EMA at $87.04 could be the next support after that. There is no need to get bearish unless they can break this sector below these moving averages for more than 24 hours.

The Russell 2000 ETF (IWM) held in well as it closed above the 8-day EMA. The ETF is still hovering at upper level range showing healthy digestion. Use $115.50 as the upper level support to watch. Below this we have the 21-day EMA at $114.50.

The Financial Sector ETF (XLF) had a two-day pull back to break below its 8-day EMA as banks earnings sent out mixed signals. Next support stands at the 21-day EMA at $21.81, and below that we have the prior pivot low at $21.66 as key support for this ETF. Trends are still intact.

The Biotech ETF (IBB) had a tremendous run as there have been lots of action in his biotech group. The ETF put in a doji candle on Friday showing upside momentum could be slowing down a bit. Some digestion above the 8-day EMA at $240.62 could keep its momentum intact.

High Beta Tech remains mixed.

Amazon (AMZN) had a nice two-day rally after holding its upper level support at $388ish. The stock has reclaimed the support of its 8- and 21-day EMA. Staying above $394 could keep it in the game for a potential range break out at $406.89.

Google (GOOG) continued its grind higher above the 8-day EMA. The stock is re-testing this key moving average on Friday at $1144ish. It was upgraded today and remains best in breed.  Earnings out next week.

Apple (AAPL) had a potent sell off on Friday to drop 2.45% but the damage was contained at the prior support level of $340. Use this as the new point of reference to trade around as it could see a quick Red Dog Reversal through this level if the market finds some footing today.  It’s been choppy, earnings are next week and could provide more clarity.

LinkedIn (LNKD) gave back most of its big gain from Thursday with 4.61% of losses on Friday. This sharp pull back could pull some air out of it, and the stock might need some more time to re set-up. It was a nice move since the Red Dog reversal at $202.50 on January 7.

Facebook (FB) broke below its 8-day EMA to retest the 21-day EMA at $55.80ish. See if dip buyers step in at this key moving average. It looks like an avoid until earnings perhaps. Key resistance is $59.50ish.

Twitter (TWTR) regained the support of its 8- and 21-day EMA after a multi-day rally, but the intra-day action has been choppy. It needs to hold above $61.50ish area to keep the bulls interested. It was upgraded again this morning and needs to clear and stay above $64.69, but it’s tricky.

Tesla (TSLA) still acts very well since the Red dog Reversal at $138ish when they came out with news that demand is 20% higher than the Street expected. Now let’s see if it can hold above $168ish to then take out $173.30.

Netflix (NFLX) has been correcting since 12/27 when it broke its accelerated trend line around $373ish. Now it’s trying to put a low in above $320. Perhaps a move trade through $335ish could create some cash flow.

Casino names are very impressive.

Wynn Resorts (WYNN) extended again and has been following its 8-day moving average since breaking its descending channel on 12/4 around $162. Friday’s high was $216 and is the new reference point to watch.

Las Vegas Sands (LVS) has also been a great name to trade/own as it continues to grind higher. Above $82ish and it could continue.  

MGM Resorts (MGM) I have talked about my long-term thesis on this name several times, including my 2014 outlook, as it’s almost at my 2014 objective already. Trim and trail.

3-D printing names started getting a bit erratic even before some started to pre-announce. They need time and should be treated carefully. Have some stops and trade them on smaller time frames. 

3-D Systems (DDD) needs to hold $90.10, otherwise it could get pressured again. 

Stratasys (SSYS) changed a bit also, so take some care.

The little ones Voxeljet (VJET), ExOne (XONE) and Organovo (ONVO) also flashed some sell signals and moved from the A list to the C list.

Most banks reported last week with very mixed results.

Morgan Stanley (MS) had the cleanest move and now we need to see if the gets “leadership status.” See if it can digest above the earnings gap of $32.60.

Bank of America (BAC) had a solid report as it was very overbought. Now it’s trying to hold its earnings gap. Use $16.99 as a pivot.

Citigroup (C) was the disappointment. It's back in the base and will need time now.

Goldman Sachs (GS) is not very interesting now, but you could trade it vs. $174.50.

Quick hits:

Salesforce (CRM) is still moving well as it’s been on the radar since it woke back up on January 8. It looks like it could continue above $59.91.

VMware (VMW) is also trading well and has opportunities. It held the 8-day Friday and bounced off $95.82 - use that to trade against now.

Blackberry (BBRY) showed a nice amount of relative strength on Friday as it triggered above $9.04ish. Next resistance is $10.30-$10.50.

Metals continue to act better in 2014. GLD keeps holding "where it has to" in order to keep traders interested, very different from 2013. See if that continues. It needs to hold $119.80ish to keep that going.

It’s been a tricky 2014 so far, but nothing all that different. Trends are still intact. I would keep riding them until the bears can keep the S&P below the 21-day moving average for more than 24 hours. Stocks are moving around in different directions but there are signals to help you navigate that.

*DISCLOSURES: Scott Redler is long AAPL, BBRY, BAC, NIHD, RAD. Short SPY.

Last Updated ( Tuesday, 21 January 2014 09:23 )
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