MorningWord 7/16/13: SO here is one for you, if U.S. equities are going to continue to make new highs, and perhaps realize the targets of many Wall Street strategists well above 1700 in the SPX, would you rather continue to own (or buy) AMZN, GOOG, PCLN making new all time highs up an eye popping 22%, 30% & 46% respectively ytd, or take a shot on some tech laggards, high quality companies that have yet to join the party like AAPL, FB or ORCL, down 19%, 1% and 4% respectively on the year??
For traders this is an age old debate, buy strength in a raging bull market, stick with what has worked, and/or dabble a bit in what should work if the rally truly as legs, as it will need to broaden out. I guess if I were a long only investor, and had some fabulous gains in single names on the year as the market is once again making new highs, I would probably be looking to take some chips off of the table and use some of the profits from winners to try to catch the next wave of the rally, if in fact it did come.
Which leads me to market breadth – it is pretty good, as the chart of Bloomberg’s index of NYSE New Highs minus New Lows shows below, we are quickly approaching the previous highs of the year. My sense is that for the rally to continue we will need to see some participation by some large cap laggards, the things that got us here can’t continue to do a lot of the heavy lifting.
So if we were playing, Would You Rather?, I’d probably be more inclined to play some of the tech laggards with trailing stops than dive into or remain long the fabulous performers that have gone parabolic.
Yesterday in this space I highlighted some recent breakouts to new highs in single names, some that did so successfully (HD & JNJ) and some that were rejected (BA & UPS). The fact of the matter is that the breakout is one of the most powerful technical patterns that exist and in momentum markets (like we are in) you are supposed to play them until they stop working. Case in point, everyone wants to hate AMZN’s profitability (including me at times), yet the stock has steadily built steam all year for its recent break to new highs:
I guess not too different a comparison in the last 9 months would be AAPL, a company where most people love the company and the products (like AMZN customers) but have been particularly negative on the stock (me included). What’s amazing about AAPL of late is that we barely even talk about it, the fever has broken and the sentiment regarding the company’s products has gotten so bad that maybe, just maybe, the stock is setting up for its own breakout (albeit not to new highs, they won’t come for years, if ever). The one year chart below shows the stock consolidating below the 50 and the 100 day moving average, but with the ovbious level of $450 as serious near term resistance:
While the technical set up is intriguing for traders, the resolution of this chart will come from the fundamentals and good old fashioned sentiment. Next week AAPL will report fiscal Q3 earnings and analysts expect earnings to decline a whopping 22% year over year……so expectations aren’t exactly high, but what will the fall bring in front of what should be an iPhone refresh? AAPL is a tricky one here and we will spend more time on it in front of the earnings event, but if it were my money, I’d rather be dipping my toe in AAPL within 10% of the multi-year lows, than continuing to ride or put new money in AMZN at all time highs.