Major averages were down slightly on lighter volume after selling off hard off the open with volume picking up early in the day. By day's end, however, volume had dissipated and the indexes finished close to the top of their respective trading ranges. Early in the day, economic news dampened sentiment, causing the initial sell-off during the day. The indexes are showing some hesitation at the top of their upside trend channels, and it would still not surprise us to see the indexes stage at least a short-term correction. So while we remain bullish we believe some caution is warranted in terms of now allowing one to get too "top heavy" in their positions.
Economic news was worse than expected yesterday with respect to first-time jobless claims, Q4 productivity and unit labor costs, but chain store sales for January were up 4.5%, far above estimates of 2.8%. The European Central Bank left interest rates unchanged, and European Central Bank President Mario Draghi said that monetary-policy should support growth because the economy is more likely to slow.
LinkedIn (LNKD) came in with 35 cents a shares yesterday, 16 cents higher than estimates, and the stock is gapping up about 10% this morning. Frankly, we would have liked to see a stronger upside move in the stock, as a 10% position held into earnings produces only a 1% overall gain to one's portfolio. However, the real crux of the matter for LNKD is whether it has the potential to rally to 200, and if that is the case, then today's gap-up move, should it prove to be a buyable gap-up move, would be the type of action we would look for to launch such a longer-term price trend. Last time LNKD announced earnings the stock gapped up but reversed on the day to close in the red, and so we are watching today's action to see whether the stock can hammer out a discernible intra-day low which would serve as a downside stop. Stay tuned for our intra-day reports on LNKD today.
We reported on Home Loan Servicing Solutions' (HLSS) initial pocket pivot on January 17. Since then, it has headed higher, but with Thursday's earnings report, it fell all the way back to its 50-day moving average where it gained support. HLSS is a very volatile stock that is prone to sudden downside "flip outs." By the close it recovered all of its losses to close up and generate another pocket pivot. For those whose sell stops were hit, HLSS can be bought back if it closes at or above yesterday's close. Knowing that a stock's volatility can surge on earnings report day, one should not be surprised in the rare case a stock sells off then recovers as the battle between the bulls and bears ensues, but it can understandably lead to hair loss when stocks act in such a manner. In many ways this seems to typify the action of stocks in this current environment.
Bottom line is to always heed your stops. If investors strictly followed the 7-week rule, they would still be in HLSS as it technically has not violated any moving average yet. That said, were HLSS to have busted through its 50-day moving average Thursday instead of getting support, a sell would be wise since a stock can fall a lot further when it moves through a key moving average with a decent amount of downside velocity. We ourselves have been shaken out of HLSS previously, and investors must decide for themselves if and how they can handle a stock that demonstrates such intra-day volatility. We tend to think that Ocwen Financial (OCN), which is a partner with HLSS, is a more stable stock in this space based on its prevous price action.
Some members have asked us about Three-D Systems (DDD), even to the point of imagining that they have seen a pocket pivot in the stock yesterday, but this cannot be the case since the huge volume selling of nine days ago overshadows any upside volume in the pattern since then. If DDD is still viable longer-term, we would recommend being patient and waiting for a new buy point to emerge.
Apple (AAPL) is becoming a "noisy" stock here as hedge fund manager David Einhorn, who says he now has the largest AAPL position he has ever had in his fund, takes an activist stand to try and get the stock turned around given his status as a "trapped long." Einhorn has owned the stock since 2010 and is likely well underwater on his position. His comments yesterday failed to rally the stock, but at the end of the day the company itself came out with a response to Einhorn that included a statement that the company has completed $10 billion of its $50 billion buyback program for the stock. With the stock clearing the 465-466 level which would have served as a stop for any AAPL short position, we think the potential for the stock to move higher as Goldman Sachs chimes in with a buy reiteration and $660 price target make it a risky short-sale until it shows signs of faltering again.
Amazon.com (AMZN) is working on a Late-Stage Failed-Base type of set-up as it flirts with its 50-day moving average for the first time since breaking out at the end of December. AMZN was able to hold just above the 50-day line yesterday but would morph into an LSFB short-sale set-up using the 50-day moving average as an upside stop if the stock decisively breaches this key moving average, currently running through the top