This market remains irrepressible despite the paltry volume we are seeing at upper levels. Ultimately, though, price action is king and the trend is your friend. Financials and homebuilders resumed their leadership role yesterday while tech was once again dragged down by Apple (AAPL) after the stock had briefly perked up starting late last week.
Earnings season has been mostly positive so far and is winding to a close, but there are some notable tech names reporting today after the close in Cisco (CSCO), Applied Materials (AMAT), NetAppl (NTAP), and Nvidia (NVDA).
The banks have continued to provide opportunity long for traders who like to buy leading stocks even at upper levels. That doesn't mean we chase stocks as they hold in steady uptrends, but rather we look for bases and upper level consolidations to get calculated entries.
The Financial Sector ETF (XLF) continues to climb higher as it hasn't violated its 8-day MA since the New Year's gap up. The ETF bounced off its 200-day on November 16th, 2012 then quickly reclaimed all key moving averages and cleared some key resistance levels at $16-16.50 area. The New Year's gap added some power to its rally and XLF has remained strong since.
Citigroup (NYSE:C) saw a clean breakout above the $43.40 level yesterday as money continues to rotate through the sector. We started to talk about the bullish set-up in Citigroup last Thursday and mentioned this name again on yesterday's Morning Call as it was forming an ascending triangle, which is typically a bullish pattern. The bank finally gave us that breakout move and the next level of resistance is standing at $46.
Bank of America (BAC) also ignited higher yesterday and has been a focus of mine for months. You don't have to be involved in every stock in the sector, and I have liked the risk-reward parameters of the BAC trade. The stock closed up almost 4% yesterday and has cleared some short-term resistance at $12 and $12.20 on its way up. The stock has room to $12.60 until it runs into the next resistance level from the gap in April 2011.
Wells Fargo (WFC) is a slower moving stock in the sector due to the company's more conservative nature, but the stock looks poised for a potential break out above $35.50. After trading in a weekly consolidation range since New Year's gap, it bounced off the bottom of the range on Friday with volume, then saw nice follow through this week. A break above $35.50 could bring in momentum to ignite the stock higher. The next resistance zone is $36-36.50.
JP Morgan (JPM) and Goldman Sachs (GS) have been leading the sector and continue to grind higher, holding their 8-day moving averages. JPM is up almost 12% this year, while GS has been a rock star up 20.80% year to date. There is no reason to expect a big pull-back, in my opinion.
The mortgage servicing stocks are something we started talking about more over the past couple weeks. These stocks have been on a great run over the past year as the big banks have had to spin off their mortgage servicing businesses due to new regulations and capital requirements. The quality of the mortgages being serviced are also improving, which is adding fuel to the growth in the sector.
The biggest name in the group is Ocwen (OCN) we briefly made a new all-time high yesterday before pulling in slightly. The stock took out the prior pivot high Tuesday last week, and now is basing nicely at all-time highs. The stock looks poised to make another move higher above yesterday's high of $41.57.
Nationstar (NSM) is also acting very well as it reversed to the upside yesterday with 4.33% gain after having a small three-day pull back. NSM held above its 21-day MA after the prior resistance level of $36.60 came into play and acted as strong support. A break above short-term resistance of $38.80 could add some fuel for the stock to take out its all-time high of $40.61.
Walter Investments (WAC) also perked up yesterday and looks like it could ignite higher with the group. After seeing a few sessions of consolidation, WAC broke out of its wedging pattern to the upside with volume yesterday. The next resistance level to watch is $48.60 and above this we have $49.67.
The homebuilders (XHB) saw a nice up-move yesterday and rewarded those trusting its 8- and 21-day key short-term moving averages. XHB rallied 3% and took out short-term resistance of $29.28 on its way up. Some consolidation at highs to digest this big move would be constructive for this ETF moving forward.
Apple (AAPL) saw a nice four-day bounce since last week, but sold off yesterday as CEOTim Cook didn't deliver what investors wanted to hear at Goldman Sachs' conference yesterday. AAPL closed at lows. The stock has been tradable for the last few sessions but has a ton to prove on a macro level. The next support level stands at the $460 - 462.60 area
Facebook (FB) sold off on a downgrade by Bernstein, who cut its target price to $27 from $33. The stock saw a gap down, then tried to fill the gap, but ultimately faded back down and closed at lows. Traders could use yesterday's low of $27.10 as the new point of reference to watch.
General Electric (GE) announced last night the company is selling its remaining 49% stake in NBC Universal to Comcast for $16.7 billion, and also is selling related real estate for $1.4 billion. GE plans to accelerate its share repurchase program to approximately $10 billion in 2013. GE went up almost 4% after-hours on the news. The bullish ascending triangle pattern was getting tight over the last few sessions and this breakout has been much anticipated. The next resistance level is standing at $23.
The 3-D printing stocks 3-D Systems (DDD) and Stratasys (SSYS) started to break down yesterday after we stated to exercise caution in recent Off the Charts newsletters and Morning Calls. The sector could be in for a break after the blockbuster IPO in ExOne (XONE) last week that is now fading a bit. SSYS closed the down 6.37% after breaking below an ascending channel, and DDD closed down 6.42% after piercing an upper floor. This group has been a nice two-way trade for momentum traders. DDD is sitting on its 21-day MA at around $62.75, and it will be key to see if it could holds this key moving average. SSYS is a little weaker and needs to hold $74 to stay intact.
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*DISCLOSURES: Scott Redler is long GE BAC TBT MSFT C. Short SPY.
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