T3Live Blog

Market Taking a Breather, GS Breaks Out

2010-07-29T23:06:00.000-04:00

By: Brandon Rowley

S&P 500 fades after gap up, flirts with trader's 1,100 level

The S&P closed down 42 basis points after gapping higher about 60 basis points. Today was the market's third day of a pull-in after its impressive 6% surge in five and half days. Traders are all watching the 1,100 level to see if prior resistance becomes support. The level generally held today by dropping below in the morning but recovering into the afternoon. I'm really not too concerned with this level, I would be willing to give stocks to the 1,075 level before becoming worried about a failure.

All eyes are on tomorrow's Advance Q2 GDP number due out at 8:30 AM. Tokyo is currently taking a dive down 1.47% following the US lower and seeing some disappointing economic data. Yet, I don't think Europe or Asia will dictate tomorrow's action. Economists are predicting a 2.5% reading for Q2. The Advance number will likely be very similar to the Q1 growth of 2.7% as it is based on incomplete data weighted towards measurements from early on in the quarter.

My guess is that the market will wildly overreact to this number tomorrow morning if there's a miss or beat. Emotions continue to run high and tomorrow's number will either bring the bulls out in force or the double dip crowd will grab center stage. It's fairly comical to consider the complexity of measuring a quarter of growth in a $14.59 trillion economy just 4 weeks after the quarter ends and that a 20 basis point miss could cause drastic selling in equity markets. Also consider that the number is revised twice but such is a volatile market obsessed with every data point.

Goldman Sachs (GS) starts the next wave higher

Shares of GS jumped 3.65% today in a down tape after a week and half of consolidation. Investors are realizing how undervalued shares are at just 7.7 times trailing earnings and book value at $128 per share. I have been battling the stock for 4 days now anticipating this next move higher and trying to work into a large position. GS leaped $12 when the SEC settled with the company after months of uncertainty. Now that the $550 million fee has been leveled against the firm and the hit has been taken to earnings, GS looks ready to run. The company is a cash machine with incredible growth and now short-term relative strength and momentum has kicked in. I am long with an average price of just below $150, my stop is at $147.50 and I am looking to take first sales around $160. I see the strong possibility that GS will retake leadership of this market in the next wave higher especially if tomorrow's GDP number doesn't disappoint.

Key commodities continue to show demand

While the market has been taking a breather, the key commodities I watch are looking healthy. Doctor copper is holding the $3.20 level as this week has been one of stable consolidation with a bullish tilt. Copper closed today at $3.26 as demand remains strong. Crude oil is trading down this week but mounted a strong reversal yesterday after a huge 7.3 million barrel build in crude stockpiles fueled a sell-off below $76 before it turned, rallied and then closed back above $78 today.

Disclosure: Long SPY, GS.

RIMM Product Launch Could be Catalyst

2010-07-29T09:26:00.002-04:00

By: Scott Redler

Research in Motion has an August 3rd new product launch. Stocks tend to like to run into those type events. This stock is a laggard and acts very sluggish, but I do get a nice trade here a few times a year.

Yesterday stock acted very well with the market soft. We have a nice flag pattern
If stock can trade above 56-56.25 on big volume, I think we get a big trade to 58-59 to fill the gap short term.

Goldman (NYSE:GS) Pennant Getting Tight

2010-07-29T09:15:00.005-04:00

By: Scott Redler

We’ve been trading Goldman stock all year. Looks ready again as the pattern gets tight. The last big buy was 138.50 and it went to 153 after hours when they settled with the SEC.

We now have a nice flag pattern. If big volume comes in, I think we can buy 148.50-149.50 for a quick move back to 151-152. Then a bigger move if market cooperates back to 155-160.

Is Pull-back Buyable Yet?

2010-07-29T09:08:00.003-04:00

By: Scott Redler

Market had a move from 1010-1120, that’s 110 handles, 80 handles from the RedDog reversal point of 1040. Since, we have pulled in about 17 handles off the highs. Was that enough? Today the futures are up as Europe is at 12-week highs. The first hour will be crucial to see if they can take Futures negative and give us a trade
Down to 1098-1102 then perhaps the major support at 1087-1092. I was tier 4 SPY at a few points yesterday but only took home Tier one as 110.60 quick trade objective was met.

TECH is very mixed
AAPL gave us a quick two-day move and then sluggish action hit the stock. I am flat now. I bought 260 added 264.80 and then sold my position as it went negative yesterday. I will see what happens today.
VMW broke upper range and the stock needs to hold 75-76 to keep superior technicals.
BIDU had a small pull in. Stock needs to hold 76-78 which was our last buy point.
SNDK had a four day bounce off 40. Now it’s not compelling.
AMZN pattern is getting tight, they saved it after earnings. Now the downtrend is my new pivot action area. I do think one day we will get a nice long here. Keep on radar for big volume. Right now my price point is 118.50-119.
RIMM this laggard has been a messy stock is acting well here. Stock was up yesterday in a down tape. I do see a nice flag pattern. I am long and will add if we can get a volume move through 56-56.50 for quick gap fill to 58-59. They have a August 3rd new product day, which could be a catalyst.

NFLX was nice short for some as it broke 101-102, the next big area of support is 94-97

BANKS are holding okay
GS tight pennant forming. Can it break to upside? I am long small and will add through 149 if we get a strong volume move.
MS holding earnigns gap, but choppy, no real price points.
BAC has been a laggard, but could get back to 15 if market holds in.

CASINOS
LVS from 22.75 and then we sold yesterday around 26. Stock held tough and is in game for new highs at some point
MGM held in okay above 11.30-11.50 stock could see $12.40-$12.60.

AGS are acting okay
POT was very sloppy yesterday. It gave us a decent trade. But I didn’t realize it had earnings this morning. So I only took home small. Stops are 97.
AGU looks okay with pivot 60.50.

Gold gave me a decent trade yesterday from 113.20 to 113.70, and is still very sluggish and could take more time.

Eat Like a Pro

2010-07-28T11:49:00.008-04:00

After competing in this years New York City triathlon my good friend Mike Lee, who is one of T3Live's top traders shared with me what he had for dinner last night.

He said, "it was the best meal of my life."
I thought I would share it with you as it is quite honestly one of the most unhealthy dinner receipts a person can have.

1 Double Cheeseburger
1 Cheese Fries
1 Cheese Dog
1 Chocolate Milk Shake

What's also amazing is that he washed it all down with some more ice cream after dinner.

Planting the Seed in POT

2010-07-28T10:16:00.006-04:00

The agricultural stocks have been looking better and POT is looking like it is headed for higher prices. The chart pattern looks excellent and our buy area is between 98.00-98.50. Our short term target area is 103.00-105.00 and our longer term price target is 110.00.

Looking for the Re-Test

2010-07-28T08:58:00.004-04:00

By: Scott Redler

The market just had a very nice calculated move back to 1120, about 110 handles from the 1010 low and 80 handles from the 1040 RedDog Reversal. The oscillators are very overbought and we could be in the process of working this off. The S&P might just trade in this new upper level of 1109-1120. I would like to see a move through Yesterday’s low for a nice “trading short” back to test 1095-1103 area. (I am short Tier 2 SPY) I will add if we get a 15 minute close through 111.11. I do think that would potentially be a dip to buy if the “re-test” is successful.

TECH
AAPL was a great trade for us yesterday thru 260.50. The action was sluggish though. I have tier one left, if it were to go through yesterday’s high of 264.80 I will add more for a cash flow trade to 267-269 on a micro level. But I will watch price action close.
BIDU was a great trade thru our price of 76. It did stall a bit in front of new highs of 82.29. I would love to see a rest then a nice trade thru that pivot high.
VMW, our stock of the year, continues to impress. We’ve had great entries and trades here. With a Red Dog reversal entry on July 1st around 62.27. It is a bit tricky up here for “traders” trying to put a new upper level. Needs some time
AMZN had an impressive move to take back the earnings gap. The more I read into it, the more I wish I had entered that night. Some say miss is due to adding fulfillment plants and hiring. With time we will have a nice trade through this downtrend that does stand around 117.50-119.50.
RIMM is trying to set up again. Some news of a new product release August 3rd. It could be a laggard buy here around 53.50-54 but needs to clear 56 for momentum. If you buy, put a stop in at 52.
NFLX crushed earnings, but no bounce yet. It's creating a lower floor to trade against 101-102, if it breaks could see another leg down to 94-97.

BANKS
GS gave us a few good trades starting at 138.50 now it seems to be flagging. This new mini range is 144-147 see how it handles this area.
MS holds gap from earnings but no new action yet, 26.44-27.50 is the new range.
BAC is a laggard I would stay away.
JPM could use a rest.

CASINOS
LVS reported decent earnings, not sure if it is enough to be a catalyst higher. Our last buy was 22.75 if your still long. Take some profits around 26.
MGM last buy was 9.20-9.40 it’s now 11.30. I think easy move is over there. I would take some profits if you still own it.

FCX was off yesterday with earnings from X. 68.50 needs to hold, if not then 65.
X had lacklustre earnings, and the stock could have got hit harder but did not. Watch 45 as support.

GOLD, we got stopped out of our GLD at 199.77. I am now looking for some trading opportunity here. We can see a RedDog reversal through 113.21 if it transpires. Or we can see how it handles the 200-day around 112. My gut tells me they break the 200day at some point to steal all the stock by triggering a ton of stops. THEN we get a great entry for a trade.

Daily Watch List for Wednesday, July 28th

2010-07-28T08:41:00.000-04:00

Wednesday's installment of the Daily Watch List by Gregg Riek and Dylan Deans available to all subscribers of T3Live.com's Virtual Trading Floor every day!

Click the image to download the PDF.

Rally Pausing, BA Beats on EPS but Misses on Top Line

2010-07-28T08:36:00.002-04:00

By: Brandon Rowley

Market up again, traders cautious for pull-in

Tokyo had a blow out day up 2.7% and the Shanghai followed with a 2.3% gain. Europe was more muted with a mixed session. US futures are bouncing around breakeven as of right now after some data on durable goods orders showed a decline. Boeing (BA) reported earnings this morning beating with EPS of $1.06 versus $1.01 consensus. BA missed on the top line falling short of the $16.1 billion expectations at $15.6 billion. Guidance for EPS and revenues for the fiscal year 2010 both came in below expectation. Yet, BA is trading down a marginal 24 basis points pre-market. It will be interesting to see how the market reacts to the revenue miss and lower guidance.

Lightening into rally, holding most

I am selling some of my longs into this multi-day move higher as the S&P 500 is up 4.6% since last Monday. My goal though, is to follow the advice of High Chart Patterns and "trade around the base". I believe in the long-term bullish story so I am trying to sell into strength and buy on weakness until further notice. Sometimes I do this well, other times not so well but being active on the margin keeps me in tune and aware of any changes in market conditions.

My "Put Your Rally Caps Back On" article this weekend was well-received in the online world and I was featured on Yahoo! Finance! The guys over at Wall St. Cheat Sheet run an excellent website and helped promote the article. Some of the comments I received were priceless. My favorite: "This guy is an idiot and we are all dumber for having read his garbage. He probably wrote this while wearing camoflage garb in Wal Mart." In fact, I did have camo on!

Disclosure: Long SPY.

The Next Macro Buy Area

2010-07-27T12:03:00.004-04:00

By: Scott Redler

In this market the only way to stay with a trade is to have the right entry and exit.
I attached the chart of the S&P with the areas that served us well, and what to look at moving forward.

THE PRUDENT ENTRIES
1) The 1040 reversal
2) 1056 was the 50% retracement
3) The push-through the downtrend at 1098

Where are we now?

We hit 1120 this morning (Last Tuesday we were at 1056) below the next major resistance area of 1125-1135. It will be important to see if we can buy back the recent downtrend break, which we call the “retest”. We did sell all our SPY today last price of 111.91 and went short SPY around 112.10, which already have been covered around 111.26 just for a cash flow trade.

I am still long in individual names based on the individual set ups that look good. I will look to buy back SPY if I can around 109.75-110.30 which would be around 1095-1102 S&P. If that holds, that will be your next entry for a macro long in the S&P.

Hey Steve Jobs, It's Time to Split AAPL Stock

2010-07-27T09:26:00.004-04:00

By: Scott Redler

After another great earnings report, a ton of cash on hand and a slew of new market-share-dominating products, it's about time for AAPL to split 3 for 1.

Stock right now is trading very tight. I am targeting a cash flow trade if we can get through 260-262 on volume and hold. This should open a micro move back to 269, then possibly new highs.

I trade this stock every day, and every now and then there is a good swing set up. My last big buy was at 215-217. The stock has lagged lately so watch price action close.

Daily Watch List for Tuesday, July 27th

2010-07-27T09:01:00.000-04:00

Tuesday's installment of the Daily Watch List compiled nightly by two of T3Live's own, Gregg Riek and Dylan Deans. It's available everyday to subscribers to T3Live.com's Virtual Trading Floor!

Click on the image to download the PDF!

A Time for Reflection and Growth

2010-07-27T08:44:00.003-04:00

By: Scott Redler

As a market participant you MUST reflect on your trades to build on strengths and work on weaknesses. Today the market is opening at new months highs. How did you handle the action?

July 7th we had the Red Dog Reversal. The market took back the 1040 level and we saw the broken head and shoulders pattern.
1) Did you act quick and cover your shorts?
2) Did you get long quickly and position fast?
3) Or did you stay short and be stubborn?

July 13th we hit 1098, an 80 handle move from the 1010 low, a 60 handle move above the Red Dog Reversal.
1) Did you sell some longs into the big move? (Market was at downtrend and first attempts don’t usually work.
2) Did you chase and finally buy the excitement?
3) Or were you still short and stubborn!?

July 20th the market held the 50% retracement level proving demand for stocks and giving us the first higher low.
1) Did you have to sell longs that you bought chasing the market in the 1090 area?
2) Did you thank your lucky stars and cover shorts if you were fighting and rolling them up from the July 7th market reversal?
3) Were you in flat and targeting that pull-in area for a strategic buy as this was the technical spot to look at if you missed the first move?

July 21st Bernanke tested the patience of every technical bull and it got most traders out of their size. But didn’t violate the higher low.
1) Did you get out of your size, take a step back and stop trading?
2) Did you sell some longs but stay focused for the next opportunity?

July 22nd Europe had positive news and market ignited and put the downtrend in view to FINALLY GET BROKEN to the upside!
1) Did you say "they got me yesterday I’m not doing a thing"?
2) Did you lick some wounds and get back involved, buying 108.50-109.50 which was still buyable?
3) Friday July 23rd you had a full day to watch the market hang tough. Did you buy 109.50 for the Break of 110.09?
4) Or did you remain stubbornly short, thinking you were more powerful than the market that clearly wants to go up?

FAST FORWARD TO TODAY. We are now over the 200-day moving average, this is when stubborn shorts get capitulated. This is where some chasers come in and buy this market- and the trade becomes very tricky.

Sometimes Reflection is tough and painful, but it is Necessary for honest progress.

Daily Watch List for Monday, July 26th

2010-07-26T08:56:00.001-04:00

Start out the new week with the Daily Watch List compiled by Gregg Riek and Dylan Deans. This list is available to subscribers of T3Live.com's Virtual Trading Floor everyday!

Put Your Rally Caps Back On, Long-Term Bull Advance Resumes

2010-07-26T08:42:00.001-04:00

By: Brandon Rowley

"Men, it has been well said, think in herds; it will be seen that they go mad in herds,
while they only recover their senses slowly, and one by one."
~Charles Mackay, Extraordinary Popular Delusions and The Madness of Crowds

The last time I wrote this quote it was May 2009 and I argued that the market had upside even after the 33% rally off lows in "So Much for Shorting the Markets" (shameless reference I know). I wrote this article following an extraordinarily anomalous time and the opportunity was the once-in-a-decade type of opportunity. While we are far from those extreme circumstances, the equity market has just experienced a 17% correction from highs and we are now 9% off those lows. Many are wondering whether the bull market is back on or this is just a bear market rally. I believe we could be at another quality buying opportunity, not nearly the extreme of 2009, but a great chance to pick up stocks on a 10% discount. Below are my five reasons for being bullish:

1. Europe learned from the US crisis and made all the right moves.

The world has been in a rolling credit crisis for three years now. The deflationary collapse struck in the United States first causing an incredible drop in asset prices in late 2008. The government was fairly quick to respond to the massive demand-side slump. In fact, the government intervention was accomplished much earlier along in comparison to the Great Depression largely accounting for why another depression was avoided.

The $700 billion Troubled Asset Relief Program (TARP) achieved major feats in restoring confidence in the banking system. Re-capitalizing major financial firms was the first step in stabilizing the collapsing equity markets and frozen credit markets.

European markets started to fall in mid-April as sovereign debt fears hit front page and calls for the complete collapse in the euro monetary union were abound as the euro was dropping from highs of over $1.50 to cracking $1.20 on the downside. The EU responded even more quickly than the US did with the TARP program. The playbook had already been written by the US, the EU borrowed the best plays and put them into action earlier and more effectively. The EU announced a debt aid package for €700 billion that quickly halted the euro's decline.

The next step for Europe was to give its banking system the seal of approval. The stress tests in the United States worked very well to build confidence by helping struggling banks re-capitalize and systematically show that most banks would be fine even in the face of possible worsening economic headwinds.

The EU's stress tests were carried out brilliantly. They were just harsh enough as not to be seen as a farce finding seven banks in need of €3.5 billion in capital. Many may disagree with that statement in terms of the test's rigor and plenty of analysts did complain but the US equity market response Friday was muted to positive signaling a broader acceptance. The names of the failing banks were wisely leaked ahead of the results so there were no surprises for participants. The tests offered the needed assurance that most of the system was in good shape to withstand foreseeable volatility.

2. Second-quarter earnings reports have been great & the sentiment pendulum has swung positive.

The chief concern this earnings season was weakness on the top line. Analysts have been arguing for months that while cost-cutting is great and improves the bottom line, sustainable growth in earnings will only come from top line growth. Bespoke has a great chart out showing that these fears have not been realized so far. As of Wednesday 73% of companies have beat expectations on their revenue numbers, far better than the historical 62% average. While earnings reporting is inherently backward-looking, it is clear that analysts continue to underestimate this recovery.

Source: Bespoke Investment Group

On top of strong reports, earnings sentiment has dramatically shifted from week one of this season to week two. Bespoke assessed as of Wednesday that the average earnings reaction has been -0.4%. Yet, Friday was a game-changer. Anecdotally, the reaction difference between Intel (INTC) and Amazon (AMZN) was rather shocking.

In week one of earnings season, on Tuesday night Intel (INTC) reported an absolutely astounding quarter amazing the Street by exceeding top and bottom line estimates on higher margins and aggressively raising guidance. INTC reported EPS of $0.51 versus $0.43 expected and revenues of $10.8 billion versus $10.3 billion expected. Gross margins expanded year-over-year from 51% to 67% for the second quarter 2010! INTC topped it off by raising Q3 revenue guidance well above $10.9 billion estimate to $11.6 billion. Second quarter 2010 was Intel's "best quarter in the company's 42-year history". How did the market reward INTC? After opening the following day 5% higher shares were sold aggressively throughout the day to close the stock up a marginal 1.7% for the day. By Friday all the post-earnings gains were wiped out.

Amazon (AMZN), on the other hand, reported earnings on Thursday night this past week. AMZN produced a huge miss of analysts estimates with EPS coming in at $0.45, far lower than the $0.54 consensus estimate. AMZN eked out a top line beat by $100 million reporting $6.6 billion. The large prices cut for the Kindle device from an original selling price of $399 down to $189 to maintain competitiveness with the iPad, Reader and nook caused a significant reduction in margins. This report was the first major miss of estimates by a market leading company. Did the market punish AMZN? Hardly. While AMZN opened on Friday at $105.93, down 16.8% from the previous close, buyers immediately stepped in on the open snapping up the discounted shares. AMZN continued rallying throughout the day and recaptured nearly all of the day's losses to close down a very mild 1%.

The change in sentiment is quite drastic. The pendulum has swung to the positive side as even a very disappointing report was confidently bought, that response coming in stark contrast to the selling seen after the absolutely steller INTC report the previous week.

3. The leaders to the downside have stabilized, GS & BP.

The SEC investigation into Goldman Sachs (GS) in mid-April marked the first significant drop in a leader of the market. Over the ensuing months shares of GS dropped from $185 to below $130 by the beginning of July. The hearings, speculations, rumors all worked as an overhang to shares for months and acted as a major drag on the equity market. The Deepwater Horizon rig explosion on April 20th was another blow to the market. Shares of BP (BP) melted from over $60 to well below $30 by late June. The oil spill pulled down many others in the oil sector, particularly Halliburton (HAL), Cameron (CAM), Transocean (RIG) and Anadarko (APC), among others.

Now, the SEC has settled with GS for a minor $550 million fine. In a broader context, the uncertainty over financial reform is behind us as Congress finally passed the financial reform bill. Shares of GS are on the rebound back up to the $150 area now. BP finally managed to stop the leak in the Gulf quelling fears of an unstoppable disaster, bankruptcy, etc. Shares of BP are now over $10 off the lows and the cleanup is well underway.

4. The first higher low is in place confirming buying interest.

For the first time in this market correction, there is a convincing higher low in place on the charts. After a series of three lower lows, buyers have stepped in to buy at higher prices. Along with the higher low, the close on Friday amounts to the first higher high and takes out the descending trendline. While the break of a trendline is not inherently bullish, it does signal a significant change in the rate of decline. The cocktail napkin technicals point to an encouraging change in previous trend.

5. Doctor Copper is forecasting a strengthening economy.

What is Doctor Copper saying? A reading of the technical tea leaves in both copper and crude oil offers compelling evidence for the bullish argument. Something has clearly changed in the dynamics of copper. Once again, similar to equity markets copper had its first higher low put in and this past week achieved its first higher high. In just this last week, copper rallied 8.9% from below $3 to challenge the $3.20 level. It may take a few days but recouping the $3.20 level will be final confirmation of this rally.

Crude oil is also showing signs of increasing demand. After breaking down below $70 per barrel in late May, crude prices have rebounded and are now bumping up against the $80 resistance level. Oil also has a higher low in place on the charts.

Actively trading this new rally:

Right when a trader gets used to trading one way, the market changes. This is happening again as it will become increasingly difficult to trade on the short side should my call be realized. Shorting can be thrilling because gains come very rapidly when they do as a result of panic-induced selling. As far as strategy goes, gains on the short side are meant to be taken off the table very quickly. As Keith McCullough of Hedgeye.com says, "There is no such thing as short and hold". I should have heeded this advice and brought in my shorts earlier rather than holding them back to flat after equities found support at the 1,050 level.

The short squeeze is often the first move up the market. This squeeze is rapid because it is exactly the same type of buying as the selling was: panic-induced. Yet, after the first move, the momentum typically slows. Buying occurs in a much more controlled and logical manner than selling often does. I think of it in this way: buyers looking to enter positions use limit orders, capitulating sellers use market orders. The buying is concerted and rational, the selling is fast and indiscriminate. Buyers say, "work me into this position"; sellers say, "get me out now!" Profit-taking definitely occurs more logically than this but a lot of selling, especially in sizable corrections like the one we just saw results from irrational panic.

Trading a new move higher will require longer holding times and much greater relaxation of anticipated levels. Panicking sellers are more acutely aware of price and will make decisions based on declining price. Buyers are typically not as aware of specific price and look to buy on pull-ins. Levels are therefore more fluid and active traders should be more diversified not only in the number of positions but also the timing of entering those positions. Allowing yourself to be wrong on timing by starting smaller and legging into a position slowly will reduce much of the stress that comes from mistiming purchases.

I have been accumulating long positions slowly over the last couple of weeks. Although I was net short as of two weeks because of a long volatility and short market position, I kept buying small amounts of individual names. Now, all my shorts are off the table and I have a broad basket of individual names that I believe will do well in the next wave higher. Time to see if this thesis plays out.

Disclosure of full portfolio: Long SPY, VMW, EMC, GS, LLY, AONE, SPWRA, IRBT, IMAX, DNDN, STP, CREE, ILMN, LOGM, AGU. Short GLD.

Watch 'Market Timers'

2010-07-23T09:35:00.009-04:00

If you weren't able to catch the debut of T3Live's 'Market Timers' on Wednesday, here it is. They say you can't time the market, we say you have to. Each portion of the show is broken down into two parts. We hope you enjoy and let us know what you think!

Market Rundown Part 1 & 2

Market Odds Part 1 & 2

Trades to Build On Parts 1 & 2

Ask the Pro Parts 1 & 2

Amazon (AMZN) Takes Beating, Microsoft (MSFT) Encouraging

2010-07-23T09:18:00.002-04:00

By: Brandon Rowley

Amazon terrible, Microsoft excellent

Amazon (AMZN) shocked the Street missing estimates by 9 cents coming in at $0.45 versus expectations of $0.54. The top line was decent beating estimates of $6.5 billion with revenues of $6.6 billion. Demand was high for Amazon's products but the drastic price cut for the Kindle to $189 from last year's original price of $399 is taking the blame for much of the EPS shortfall and margin squeeze. Shares of AMZN are down 11% pre-market and dropping low enough to challenge the psychological $100 post-earning last night before rebounding.

Eddy over at Crossing Wall Street had an excellent evaluation of AMZN's earnings reaction. He has been bearish on shares for a long time and this report highlights the dangers of investing in companies with valuations like the 50 times trailing earnings AMZN holds.

This is the problem with owning a richly valued stock. Despite getting the enormous growth potential of the company, you always have to impress analysts. You have zero room for error. If you make one small misstep, you’ll be punished harshly.

Think of it this way. Amazon missed earnings by nine cents a share, yet the stock was down $15 a share. That’s the equivalent of a Price/Earnings Ratio of 166 for those marginal nine pennies. That’s obviously very high but that’s what you’re buying when you go after a hi-flier like Amazon.

Microsoft (MSFT), on the other hand, "saw strong sales execution across all of our businesses, particularly in the enterprise with Windows 7 and Office 2010". MSFT even offered investors some of the exciting developments: "Our transition to cloud services is well underway with offerings like Windows Azure and our Business Productivity Online Services, and we look forward to continuing our product momentum this fall with the upcoming launches of Windows Phone 7 and Xbox Kinect." MSFT exceeded on both the top and bottom line with EPS of $0.51 versus $0.46 expectation and revenues of $16 billion versus $15.5 billion. Shares are up a marginal 80 basis points pre-market.

S&P continues to bounce around, waiting to clear 1,100

Last week Friday the market looked horrible falling out of bed and dropping 261 points. Monday gave us a small bounce and Tuesday opened lower. Yet, buyers stepped in on Tuesday and mounted a large upside reversal. Wednesday though, proved that the sellers were not to be outdone and Bernanke spooked investors by talking about everything we already knew and the market dropped 1%. Even with a minor sell-off before the close yesterday the market still gained 2%. The S&P 500 is within 5 handles of the 1,100 level pre-market today.

It is fair to say most traders have been thrown for a loop this week as the S&P 500 is currently up 2.2% for the week yet follows the drubbing seen in stocks last Friday. I had short on the brain all last week and thought Friday confirmed my thesis. Now, I have taken all the shorts in and am anticipating an upside breakout. Perhaps I am being whipsawed, perhaps not. Honestly, I don't know, I'm just working on getting good prices and keeping stops tight. Today's action should clear things up a bit.

Disclosure: Long SPY.

Trading Watch List for Friday, July 23rd

2010-07-23T08:47:00.000-04:00

The Daily Watch List researched and compiled by Gregg Riek and Dylan Deans. You can find this Watch List on T3Live.com's Virtual Trading Floor everyday!

Time to Build a Portfolio as Market Breaks Downtrend

2010-07-22T10:51:00.010-04:00

By: Scott Redler

Yesterday I stated I thought there was a 85%-90 chance low of the year is in, and my opinion has strengthened with today's bullish action. Private sector earnings continue to improve significantly from last quarter, with many blue chips exceeding high earnings expectations. The promising industrial data from Europe this morning only added fuel to the fire.

Going forward, depending on your desired time horizon and trading strategy, I feel there is an opportunity to build a core portfolio of our "go-to" stocks that we can also trade around for cash flow. My philosophy for longer-term investing is this: find quality stocks that you want to own, and be patient to get good entries on those stocks. You can tier in and out of these positions as the climate changes. My list of "go-to" stocks to own for the foreseeable future is as follows:

AAPL – Apple is known for its innovative culture and tremendous brand equity, but few truly appreciate the scope of their business. Most recently, the iPad and iPhone 4 have become the latest products to explode onto the market. Tuesday’s tremendous earnings report speaks for itself, and eased fears that 'Antenna-gate' would impact iPhone sales. The iPad/iPhone pie will continue to grow and the outlook is very positive for this tech leader.

BIDU – Baidu is a Chinese language internet search provider offering online advertising service. Wednesday’s earning report was outstanding as the company was able to take advantage of its new advertising system and Google’s conflict with China.

VMW – VMWare is a leader in cloud computing, providing virtualization infrastructure software solutions primarily in the United States. On Tuesday, VMWare reported a 48 percent jump in revenue for the second quarter, a greater increase than expected, and raised its outlook for the full year on strong demand for its virtualization software.

SNDK – Sandisk produces data storage products based on flash memory, which retain data even when power is interrupted. Its products include removable and embedded memory cards used in many electronics, including medical devices and notebook computers. Sandisk reports earnings today, and is expected to significantly grow its earnings per share and revenue.

AMZN – Amazon started as the world’s largest online bookstore and has become the world’s biggest store for, well, anything. Amazon cut prices on its portable reader, the Kindle, and announced increasing sales in it, and is now selling more Kindle books than regular books. Amazon also reports earnings today.

MSFT – Microsoft is the world’s largest software maker due to its desktop operating systems. Microsoft Office suite is positioned well to outperform. It is currently trading at 12.5 times earnings should reach closer to 14-15 times earnings.

CSCO - Cisco Systems routes dominates the market for Internet protocol-based networking equipment. The company provides routers and switches used to direct data, voice, and video traffic. I am looking for CSCO to report impressive Q2 earnings.

FCX – Copper producer Freeport, Mcmoran, Copper & Gold has a geographically-diverse asset base with significant reserves of copper, gold and molybdenum. They posted a 10% gain in net income Wednesday, beating estimates, and this growth trend should continue.

X – Steel producer U.S. steel has had a big run the past few days. It looks like it has formed a low at 33.25 and higher prices are in store.

LVS – Las Vegas Sands operates casino hotels in Macau, Singapore, Bethleham, and of course, Las Vegas. It has been one of my favorite stocks on the long side this year, and the charts are telling me that new highs are in the near future. The consumer discretionary sector should also recover with the economy.

GS – With the recent SEC settlement and financial regulation bill out of the way, Goldman Sachs has room to run. Goldman is still the cream of the crop among the big banks, and should work its way back to the highs of the year at 185.

JPM – JP Morgan, per usual, posted a stellar earnings report. Like Goldman Sachs, the cloud of uncertainty that financial regulation created is now removed which makes JP Morgan a very good pick.

OIH – This Oil Service HOLDR’s ETF just broke out of a channel above 105 and looks destined for higher prices.

GLD – I have been playing gold successfully over the past year and while it broke its uptrend, it had its first up day on Tuesday and we could be seeing a pivot low.

Trading Watch List for Wednesday, July 22th

2010-07-22T08:48:00.001-04:00

Today's installment of the Daily Watch List brought to you by Dylan Deans and Gregg Riek. Both guys are prominent radio hosts on T3Live.com's Virtual Trading Floor! Tune in to hear them talk through these trades throughout the day!

Market Rebounds from Bernanke-Inspired Sell-Off

2010-07-22T08:38:00.004-04:00

By: Scott Redler

Yesterday’s mid-afternoon Selling spree hurt. What hurts even more is seeing the S&P up 13 handles above where I had all my size! This is the market, and I have to deal with it like the rest you. You either need to be perfect and quick, or have expanded time frames. If you are caught in the middle like I sometimes trade, days like yesterday are hard to handle.

Anyway as long as we stay above 1056 on the S&P, the better the odds at some point we will break the downtrend. If we break below 1056 then yesterday’s high of 1089 could be another “lower high” in the series of this downtrend.

I apologize for getting a bit over excited without the confirmation of the downtrend break. So you can either make “extra” for being early, or get hurt anticipating a pattern that doesn’t trigger.

Today we have mixed earnings as the “Have” and “Have Not” earning season continues. What seems to be consistent is that they keep selling off even the good earnings where none seem to close on highs of the day.

Market Timing Chart

2010-07-21T15:38:00.009-04:00

By: Evan Lazarus

This weekly S&P futures charts highlights one longer term "investing" strategy that works well for those interested in putting money to work in their 401k or longer term portfolios with limited stress or effort.

This chart represents the last few years in the S&P's and how using a 13/34 exponential moving average crossover on the weekly charts has worked well for catching longer term trends. This will never catch tops or bottoms but is usually good for 60-80% of a longer term move. We have recently seen a bearish cross as of a few days back which could signal the end of the bull run from the March 2009 lows and be a decent place to step in for what could be the start of a new downtrend.

This picture only represents a small segment of time but if you were to go back forty or fifty years, you would see how well this actually works with limited whipsaws.

Tune In to T3Live for New Show 'Market Timers' at 4:15 EST Today!

2010-07-21T15:34:00.006-04:00

Just a reminder to everyone that after the close today at 4:15 EST, T3Live will debut its new segment 'Market Timers', the show where trading gets technical. They say you can't time the market, we say you have to.

This week Scott Redler and Mark Melnick will face off in an animated discussion on topics ranging from Apple earnings to the future of active trading. In terms of format, think a mix between PTI and Fast Money. You guys are going to love the show, make sure you don't miss it. We can't wait to hear what you think.

Apple (AAPL) Asks "What Recession?"

2010-07-21T09:04:00.000-04:00

Apple does what Apple does, VM Ware and Wells Fargo join the fun

Apple (AAPL) did last night exactly what Apple does, soared passed any and all expectations. With consensus expectations for EPS at $3.11 AAPL reported $3.51 and added a top line beat by $1 billion for revenues of $15.7 billion. EPS guidance was light as usual but the market has learned this game and enjoys it. There was nothing to not like in the AAPL report. The 61% year-over-year jump in iPhone shipments along with 33% gain in Mac sales fueled much of the gains, not to mention the 3.27 million iPads already out the door. AAPL continues to be in cruise control at 85 miles an hour on open highway, shares are up 4.3% pre-market.

VM Ware (VMW), a leader in virtualization solutions, reported as well coming in 2 cents ahead of estimates for EPS of $0.34 and a beat on revenues as well with $674 million. Guidance was strong and shares are up 4.4% pre-market. Wells Fargo (WFC) delivered on revenues this morning matching estimates for $21.4 billion while handily topping EPS expectations at $0.55 versus $0.48 consensus. Shares of WFC are trading 5.6% higher this morning.

Pressing short side terrible call

My thought yesterday to press on the short side was perhaps my worst call of the year so far. I tried averaging into more on the short side for the first hour and then gave up and let the market run. Sentiment dramatically reversed and pre-market positions of key earnings stocks were no indication of how the market reacted on the open. Pepsi (PEP) open lower but buyers immediately stepped into reward the company for its impressive earnings report rallying the stock throughout the entirety of the day and closing it 4.3% higher. Goldman Sachs (GS) went from trading down over 2% pre-market to finishing the day up 2%. Even IBM (IBM) mounted a strong rally back to close much of its gap down and only close the day 2.5% lower.

Yesterday's rally was a very strong reversal leading many to believe the bottom may be in for the year. Gains are meant to be taken on the short side and I have perhaps held on too long. Ultimately, 1,100 is the crucial short-term level in the S&P. Should we clear that, all my shorts will be taken in and I'll put my bull hat back on.

Disclosure: Long VMW; SPY, IWM puts. Short SPY.

Trading Watch List for Wednesday, July 21th

2010-07-21T08:33:00.000-04:00

Daily Watch List brought to you by Gregg Riek and Dylan Deans. This PDF is available to subscribers of the T3Live.com Virtual Trading Floor!