Week in Review
DJIA +81.09 (+0.62%) to 13,155.13; S&P 500 +4.13 (+0.29%) to 1,418.07; NASDAQ -11.23 (-0.38%) to 2,978.04;
Friday’s action was a mixed day but predominantly based on on a stock of the day and for that matter the week, Apple Computers (AAPL). I do not refer when the Dow leads for the day and week as while it is comprised of some of the bigest companies and brands in the US, it is also the smallest price weighted index and these days is often regarded as a poor judge for the broad market. The word of the week from last Week in Review was cautious. We had come off a strong rally and uncertainty due to comments from congress was controlling the headlines. That still seems like the environment coming into the next week but the difference is that we have spent time consolidating since then. An early morning gap higher on jobs data quickly faded and after giving up all gains plus the S&P bottomed about 11 am and then continued the rest of the day higher but never retaking the morning highs.
Apple Computers (AAPL) has been the stock of the week and most of the the pundits/analysts, invest managers and alike that have been on TV have been asked to take a position in one way or another. Due to the 50/200 “death cross” on AAPL, there have been more bears than I would have normally expected. There is trading and investing and the two should never be confused and the lines never crossed so for now I am only speaking to those looking at the AAPL as an investment. I have a hard time getting to bearish on a name like AAPL. I find the name fairly valued here and at a discount to the S&P 500 as a whole with more growth if analyst expectations are relatively correct. I would love to get a shot at AAPL with a 4 handle but then again I hear that from many so will we get a chance? Often when there is a key level that people are watching you stop above or you initially blow through stopping out people with stops just below that level and then turn around. So that basically means that we might go lower or might not, really helpful right? I feel your pain. So how do you play it? I believe you worry less about picking the exact bottom and use scale ins to build a position. I think right here AAPL is worth a scale in (1/3, 1/4, 1/5 – whatever fits your risk allocation profile) and you could even go two months out and sell an upside call just to bring in premium incase we are not ready to bottom. I will try and talk about this more in the future, maybe in a Education Section but trading/investing is not about absolutes to me, it is about probabilities and putting those probabilities in your favor.
Smith & Wesson Holding Corporation (SWHC) is another company that has been hot lately and was making noise Friday. After reporting earnings after the close Thursday, SWHC opened higher and then the sell off began, finally closing down over 9% for the day and more than 10% from the highs of the day. While that is not the type of action you are looking to see after a stock reports, this has been a hot name in 2012 and including Friday’s sell of is still up 127.5% YTD. SWHC raised estimates for 2013 (looks like even above analysts estimates) including an EPS range of $1-1.05 and Revenue to $550-$560M. In addition to upping earnings and revenue they also announced what is roughly a 3% share repurchase program which is slated to run until June 2013. The last thing I like about this name besides a fair valuation and growth is the nature of their business. Sometimes you want to own something that provides you a hedge against bad situations and along with things like Gold and other commodities, I think you can add a gun manufacturer. Let me make a quick pit stop and note that I don’t look at stocks based on their business and my personal beliefs so I am not advocating or demonizing guns. I review companies based on their perceived ability to make me money and in this respect I think I have more of a Jim Cramer view of the situation where you invest/trade companies to make money and then you can use that money to then fund activities to fight that company, but first make the the money.
Week in Review:
From Monday we had two popular names in the news and for different reasons. The first was Dell Computers (DELL) which received an upgrade at Goldman Sachs and noted them as a potential LBO candidate. While the LBO candidate did not make much sense to many takeover specialists. Dell drifted higher the rest of the week and my comment Monday was Dell could target $11-11.40 but a complete turn around might take more time and will include fits and starts in the meantime. Also in the news Monday, on the downside, was Nexflix (NFLX) which was down on reports that Coinstar’s Redbox (CSTR) and Verizon’s (VZ) relationship will begin December 6th. On Demand will initially not be ready but the new titles will be available at the CSTR kiosks. I noted that NFLX is a long term name I like but I missed this first move so I have been waiting for next opportunities and I did/do believe they will come.
Tuesday saw Netflix (NFLX) back in the news with an announced distribution agreement with Disney (DIS) for exclusive U.S. subscription rights to DIS films. This sent NFLX and DIS higher but I still am looking for a better set-up for a long entry and believe it will come. If you don’t remember, otherwise Tuesday was somewhat boring as we then had a bevy of economic data Wednesday and the rest of the week. Also something interesting is Tuesday marked the last down day of the week in the S&P 500.
Wednesday started a clear separation between the Dow & S&P and the Nasdaq and no surprise this was due to the stock of the week, AAPL. The S&P was able to recover from an early day swoon but then lost the majority of its hard fought gains in the last hour of trading ending with a very small 2 point gain.
Thursday was another boring day for the S&P but after a flat open some buying in the S&P allowed us to close higher and more importantly was providing the look of a flag build since the lows off Tuesday’s early morning recovers. This ultimately set-up the gap higher Friday morning on the jobs data mentioned above. A stock of the day Thursday was Starbucks (SBUX). This is a name we highlighted early in the morning (pre-open) on StockTwits and after a somewhat average open, this stock was off to the races closing at $53.70 up nearly 6%. If you like SBUX this could just be the beginning of the move with first $55.75 being a target and then $62. I noted I would be using $49.50 or below Wednesday’s low as a stop.
As always you can visit the Event’s Calendar for the release of economic data, scheduled meetings and other news that could move the market. Also in that section are Dividends and Splits.
Major averages 5 day results:
Dow Jones Industrial:
S&P 500:
Nasdaq:
The S&P 500 had somewhat a boring week as we continue to be pinned between the two fib levels noted on the Daily charts (38 & 62). The 4 hour chart is showing a potential flag pattern but the Index really needs to start moving pretty soon or risk losing the bullish pattern. The MACD had a nice recycling set-up but there have been times before where the inability to takeout resistance caused a drop. If that happens again I will be watching the longer period MA’s on the 4 hour chart and the 1400 level on the futures. On the Daily Cash index I will be watching the 20 day MA and then the downside Fib. On the upside if we breakout I will be looking for initial resistance at the 62% fib and then around the orange horizontal line at 1434.
