Do you buy the dip?

Index & Sector performance 1/28/14

The Market:

In the overnight session the futures managed to recover gaining nearly 20 points from Monday’s lows.  When the Durables number was announced and came in much worse than expected the market puled back challenging support but that support held and by the open the market was back near the pre-market highs.  The remainder of the day the S&P 500 stayed in a relatively tight trading range with all of the major indices closing higher.

In Economic news the Durable Goods numbers came in much worse than expected with Core Durable Goods Orders posting a -1.6% when a 0.7% gain was expected and headline Durable Goods Orders posting a -4.3% when a 1.9% gain was expected.  Just before the open, Case-Shiller came in as expected with a 13.7% gain which just narrowly beat the previous month’s reading.  Lastly, consumer confidence handily beat expectations posting an 80.7 vs expectations of 78.3.

Economic Data week of 1/27/14

In the News:

As you might expect during the thick of earnings season, the majority of the large moves are based on the EPS reports and one highly anticipated report came out last night, AAPL.

Apple (AAPL) was in focus all yesterday as their EPS report was scheduled for after the close.  AAPL beat EPS ($14.50 vs $14.09) and revenue ($57.6B vs $57.46B) expectations but also guided Q2 revenue below consensus expectations ($42-44B vs $46B).  Wall Street was expecting better and sent AAPL shares 7.99% lower in today’s trading.   There were a few Downgrades but it appears the majority of firms are lowering targets and using the dip as a buying opportunity.  You can see a record of the analyst comments we found below.  We are interested in AAPL on this dip but would not be rushing in and would wait for a better set-up even if that meant buying higher.

Also moving lower after a disappointing EPS report was Seagate (STX) which lost 11.25% in today’s trading.  Not mentioned in the Analysts Comments below is that Needham came out in defense of STX and reiterated their Buy rating on the stock with a $62 price target.  Also bullish on the name is Brean Capital and Pacific Crest with a $70 and $65 price targets respectively.

Ford (F) started higher on what was a beat of EPS and revenue but could not keep the momentum going and ultimately closed relatively flat on the day up 0.06%.

The following noteworthy companies are scheduled to report earnings before tomorrow’s open: BA, BIIB, EMC, DOW, PSX, VLO, MPC, HES, WLP, MKC, SEIC, NYCB, JBLU, TUP, FLWS

Analyst Comments:

Upgrades 1/28/14

Downgrades 1/28/14

Initiations 1/28/14

Price Target Changes 1/28/14

The Game Plan:

Thursday’s small move lower below the 20 day SMA laid the ground work for Friday’s strong sell off which continued Monday until the Index found support at roughly $1772 which is a region that has been a point of reference before.  Today the S&P was able to recover although it did so on much lower volume than we saw on the declines.  We will not yet call this a dead cat bounce but the Bulls need to show much more conviction.

The market may be done going down but we see enough in the charts to warrant caution as this may only be the beginning of what is a broader pullback.

Key levels to watch in the S&P 500 are $1812-15 on the upside and $1772 on the downside.