If Wednesdays move was a technical reversal, then today's follow up move is purely due to some new found earning momentum. We had a number of technology stocks ( QCOM WDC FFIV TRMB...) gapping up because of their earning reports. This in turn, helped many other technology stocks that have been battered recently to gain some good momentum. The game has clearly turned since yesterday from sell on fear to buy on hope. The hope for many stocks is that they'd release better than anticipated earning and give a rosy outlook for the year.
In the case of MSFT, we had a pretty good report including good guidance for the whole year. This again is causing all sorts of technology oriented companies to move up in tendon in after hour. Friday is likely going to be a good day and we'd be buyers on dips if they come. Some of the usual Friday profit taking may creep into the equation following this quick trip up. At this point, we can feel that many market participants are just "afraid" to chase up this market thinking that we are still doomed for recession and this market will eventually find its way down and break new low. You can't blame'em. That analysis may very well be true. But first, we have to try and take advantage of this rally at hand. We feel that we are at least safe up until the next Fed meeting(which is next week), if not the whole month. Why? Clearly, companies that have released good earning have been rewarded nicely and some beaten and forgotten stocks like RVBD ride the coattails. This is the confidence traders look for and more speculation on potential good reports will put more money at work, it's that simple. After this earning period, then we can focus on the actual economic side of things and prepare on a longer term strategy. For now, this rally is most definitely becoming tradable.
We have to admit, markets action right now can make even the seasoned traders go crazy. Even though we have to be aggressive and take advantage of things but the thought of carnage that happened merely 48 hours ago can curb your actual execution. Basically, it isn't easy going from super cautious from the back of a deadly drop that last 2 weeks to super aggressive to trade this pop. The transition isn't easy and you are not the only one feeling the pressure. The bargain hunters and more long term value investors are the ones who will probably make the most out of these last few days in the long run.
Now some sectors and plays...we outlined the reports coming out Thursday to get a better picture into what may be tradeable...
Chemical/Agri., POT's earning is definitely helping the entire sector to pop up on good gains. We really like this sector and even though some of these plays can be super volatile, we'd be inclined to buy on dips quite aggressively assuming this market isn't going back to yesterday's low any time soon. Our favourites include MOS MON POT CF TNH. In this kind of market, bigger is safer and easier to play.
Solars, this may be a tricky sector to gauge now as one report from SPWR was getting sold off while another report from WFR is getting bought in AH. The only conclusion we have is that it is going to be more of an individual game for this round at this point. As long as the good reports get bought up, we will not write off this sector.
Bottom line, even though we may enjoy a couple of good days ahead but it's still prudent to set stops and take potential profit as we move along. Nobody likes to sit on cash during a long decline so now is the time to take advantage of this market.