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Market Continues Assault on Highs

John Darsie

Stock futures now point to a flat open Thursday morning after yesterday's inside day. We had manic price action to start the week that left traders scratching their heads, but in the end it appears that the trend remains firmly intact. Yesterday morning following a small gap down the S&P 500 ETF (SPY) pinged the 8-day moving average before turning higher. Overall, though, it remains hard to put on a lot of new core trades at these levels, but if you take a stock specific approaches there are some compelling set-ups that remain.

The financial sector continues to lead the market higher, which is very positive to see. Tech has been lagging a bit, but so far it hasn't been a heavy burden. Goldman Sachs (GS) has re-emerged as the leading bank stock since earnings and continues to trade near highs. JP Morgan (JPM) continues steady climb. Over the last two days Bank of America (BAC) has perked up again and looks like it could take out pivot highs. Meredith Whitney was on CNBC this morning talking up the sector, which could provide a further lift.

A sector we haven't talked about much but deserves our attention is the mortgage servicers. Because of new regulation after the financial crisis and tighter capital requirements, the big banks are being forced to unload their mortgage servicing arms. The big beneficiaries have been a group of loan servicing companies who have bid on those asset being shed by the banks. The biggest name in the group is Ocwen (OCN), which has been on a tear of late. The stock is up 400% since the beginning of 2011 and has doubled since August 2012. However, there does appear to be a bit of a up and handle pattern developing that suggests higher prices.

Other stocks in the sector to watch are Nationstar (NSM), which has taken over the bulk of Bank of America's mortgage servicing business, Home Loan Servicers (HLSS), which delivered a solid earnings report before the open today and looks set to open higher, and Walter Investments (WAC), which has put in a constructive upper level wedge pattern after a big run in late 2012.

Yesterday Apple (AAPL) disappointed traders who were looking for immediate follow-through with an indecisive doji candlestick. Let's see if it can push higher today. Google (GOOG) is quietly hanging near all-time highs, which is a good sign for the market and tech. AAPL has been largely responsible for the relative weakness in the Nasdaq, but there are other names in the group starting to take the mantle. Watch for LinkedIn (LNKD) earnings after the close today, Scott is playing it with a call spread.

Gold (GLD) and Silver (SLV) wedge patterns are getting tight and close to an apex. It feels like most traders are leaning long as talk of currency wars heats up, but this morning they are set for a lower open. Let the price action dictate your decision-making.

*DISCLOSURES: Scott Redler is long MGM, GOOG, BAC, FB, GLD, GE, SLV, ZNGA, DBC, TBT, SLV calls. Long LNKD call spread. Short SPY.