It’s been a while since i posted so here is a quick overview of my current thinking of the markets and some stocks.
First up, options expiration just passed through so i’m in 2 minds given the recent behaviour on the market of where we will be going. At the root level, the fed is busy tapering so logic would say if the economy is improving and the stimulus is winding down, we’ll be in a sideways pattern for a while. Given the valuations of many stocks ( not the high beta ones ) are still reasonable then i think this is a plausible assumption until proven otherwise. The market had a quick probe of close to 1900 on the futures and rejected it then bounced back later friday.
Here is a chart of the /ES mini chart from today.
This is a weekly, as you can see the uptrend is still firmly intact and we’re quite a way from the 200ma. I’m thinking about 2 outcomes here, one is above as discussed, we trade sideways until support comes up to a good level and then market then resumes up to 2000 or…we get some kind of flush down to low 1800’s or maybe 1700’s (10% correction from 1900 is 1710 ) – maybe due to some unforeseen risk that comes out of nowhere whether geopolitical or otherwise. Nobody knows at this stage so we just need to make sure we cover our risk appropriately.
What i can say is that the key levels on the daily are around 1850-1860, 1820 and down at the 200 sma at around 1780. Resistance is very clearly the 1890-1900. I see it as sort of a domino effect i.e. if 1850 goes then i think 1820 and 1780 may follow suit fairly quickly. There is still an unfilled gap around 1840, i’m watching that closely. Likewise on the upside, if 1900 goes, i can see a run for 2000.
Given where we are in the year and the weak months are approaching then you just need to be more alert, probably why so many folks were making a big deal about Tepper’s remarks last week.
Also, put things into perspective, we’re basically where we were at the beginning of the year, the market has gone nowhere but it probably doesn’t feel like that does it? 🙂
Below is the daily /NQ emini futures.
As you can see the nasdaq has taken a very noticeable beating from the high, got a bit oversold then reverted to the mean and is chopping around the high volume node around 3575. Resistance around 3650 and support around 3440. I’m expecting chop, nothing here is telling me to jump in.
AstraZeneca ( AZN )
Pfizer this weekend just upped the bid to $117 billion on this company. I’m expecting another pop in the stock price. The size of these acquisitions is becoming eye-popping. I’m guessing most of the big corporates are trying to take advantage of the low interest rates before time is up.
There is plenty of cash flying around, that’s for sure and i think there maybe a whiff of ‘let’s do this now before the rates start to get jacked up’.
Anyway, i wouldn’t buy AZN here even though it is a great stock, the big money has been made in my eyes but i’m hunting around for other potential takeover targets.
As an aside, I think food inflation is going to come back with a vengeance amongst other things but that’s just my take. I’m already seeing a ton of things happening at the local stores here where prices have gone up and size of product is going down..talk about getting screwed at both ends. Eating out was expensive a couple of years ago and now it is pretty ridiculous up here in Canada. Maybe i’m just getting old, maybe i’m just focusing on things too much but it definitely feels like something is changing.
Citigroup ( C )
I like the action here, the stock looks like it is probably going to get another test of key support around the 42-44 range. I’m likely to pick some up when i can but why? The dividend is crap, the stock has already had a monster run. Well, if the rates do go up, these guys will probably start coining it pretty good again, if the economy grows, they will ride up with it. It is highly unlikely ( but not impossible ) that they will get down to the $15 range again unless something cataclysmic will happen. I also like the fact the book value and PEG are low, the P/E is low and the sentiment is pretty grim…that’s the sort of thing that catches my eye. Not an overnight play by any means, just one to accumulate on the side for the long haul. I’m expecting their dividend ( along with other players like LYG and so on ) to start reverting back to normal levels in the next couple of years.
PetroBras ( PBR )
This stock is cheap and for good reason, they are still in a pickle, the fundamentals aren’t great but here is what i am seeing. There are Brazil elections coming up, the stock has been run through the grinder with corruption and all the rest, people hate it, the P/E is crazy low, the world cup is coming up and the olympics are after ( Brazil is not exactly filling me with confidence here given the current state of the olympic construction ). Anyway, in terms of risk/reward i like it. It was a steal at $11 but it has run a bit and there are a few catalysts where i do think this can get to $20. Over the next several years i can see this reverting back to $30-40 maybe….all depends on the government i guess so keep it on the watch list and watch how it acts, any sharp sells offs down to the $10 range is a buy in my eyes. Not one to bet the farm on though.
Tesla ( TSLA )
One of the high flying beta stocks that has been hammered in the recent sell-off. $265 down to $180 or so..Pretty clear where the long term support and resistance is right? Well long term is 2 years? 🙂 Remember Tesla last year around this time was $45. That’s a hell of a run to absorb. Just like the market, i think it’ll settle into a range to absorb some of this move, we’ve had the run up, we’ve now had a run down – currently supported by this rising 200ma.
If you believe in the long-term story of Tesla, this maybe a good opportunity – no harm in taking a small bite if you really believe in something..for me, the risk is too much here, i would suspect if the market does correct, Tesla probably has another leg down, maybe $120 range? I’ll sit it out for now and see if i can get cheaper. Sentiment still isn’t horrible enough on the stock for me to pony up. Short-term options plays maybe good if you can see where the intermediate trend is, maybe it’ll flip around this $200 for a while.
Apple ( AAPL )
Last but not least, my old chum AAPL. A fabulous momentum stock when it works, i’ve done pretty well out of this guy the last 2 years by buying long term options out in anticipation of forthcoming catalysts ( iPhone 5 release, maybe iPhone 6 )? The earnings recently were a real treat and shows how even a huge stock like this can move with little effort if they can surprise which they did. As you can see we’re churning and digesting that large 80$ move from the earnings, the split is just around the corner. There is enough stuff coming out later this year that i think this guy can rally through $600. I’m actually looking to sell my long-term calls around $620-$650 if it can get there. The late rally on Friday in the stock from $585 back to $597 is promising. $560-570$ is key support.
I believe next week will be fairly light on volume and not expecting too much given that we are running into Memorial day weekend in the US.
Best of luck.