Monday markets as Phil has pointed out in his post, the market looks to continue its momentum from last week into Monday as the Asian and European markets have done thus far today. The question though is can that momentum carry us through the entire day with how far we’ve gone on mixed data and earnings.
Futures as of 8:15 AM is showing the Dow opening about 30 points higher and the Nasdaq close to 2 points higher. This comes off of an already impressive rally that stocks and commodities had last week. Some investors may be wondering how much longer can this rally last?
With no earnings reports and no economic data out there to quash the spirits of investors, some may think the sky is the limit. I would be careful. The S&P 500 is at its highest level since October 6, and it is hard to not believe that some profit taking at these levels will not start to occur. Its hard to continue to sit on the sidelines while the market continues to rally, but it would not be advised to invest into a market with no catalyst. What will drive the market today? Momentum… It could be so, but it is hard for me to recommend an entire market continuation without something to drive it.
Since we really have no economic data of importance or earnings this morning, we are scouring the news and looking for
stocks to play based on that. One set of important indicators that does get released on Mondays is upgrades and downgrades. We saw an upgrade on WPP Group, who produces the show Mad Men, but I like the upgrade that Barclay’s Capital Group gave this morning to credit cards, which brings me to my buy of the day.
Buy Pick of the Day: Mastercard Inc. (MA)
I missed some of last week’s rally, and as I continue to see the market with fundamentals and technicals as bearish, until I see it actually happen, I will not be able to recommend anything remotely bearish. This is basically my way of saying … gosh I hope the market doesn’t decided TODAY IS THE DAY for a sell off.
The upgrade coming in from Barclays was such that they see credit card companies having strong earnings growth over the next three to five years, and the company upgraded Capital One Financial, American Express, and Discover. Interestingly, of the five major credit card issuers, these three are leading the way this year in gains while Visa and Mastercard have been market laggards.
Barcalys analyst commented, "We estimate that earnings leverage is significant just from a reduction in credit costs without making material increase in revenue growth."
I like the sounds of that, and I think the marketplace should as well. I don’t want to get involved with the three upgraded as they are all facing 2% or higher market opens. Mastercard, however, is only set to open 1% higher at the market open, and I think with this upgrade coming out it could be a great day to see some financials rallying especially at the rate they have been moving on pretty much non-existent bullish data.
I don’t like the pricetag for this stock, but it is definitely a place to pick up some options. I also do not like the technicals because the stock looks very toppy, but I think the market has looked toppy since mid-July and look at what it has gotten me. At some point, you have to throw away the technicals and just jump in the ship. With an open around 209, we could see a movement up to 215. However, watch the market carefully in the morning because if you see some heavy selling at the beginning of the session…the market could be doomed today.
Sell Pick of the Day: Toll Brothers Inc. (TOL)
Toll Brothers may receive a pretty sizeable hit to its market price today as the company received a downgrade from Citigroup this morning. The company said that Toll is now a "hold" instead of "buy," noting that the stock has had a LOT of upward 
movement and they want investors to be cautious and size up valuation. Yes, a stock that was at 16 per share and is now 22 in a month may not be completely valued correctly. Long term, Citi still likes the stock at 25 per share, but they are recommending another entry.
That has pushed the stock down over 2% in pre-market trading, but we can expect some more downward movement for this stock from an entry at that lower price. The stock has been overbought for more than a month, and it is moving very close to its upward bollinger band.
The market has not really cared about bad news in the past, but since I recommended Mastercard for the market to be bullish, I can’t completely give in. I think this warning from Citigroup is a red flag for the home builder sector. These stocks have seen great gains, but they are still weak on fundamentals in many ways. So, entering at this price might not be the best option. If the market turns south, TOL may see a quickfire sale, otherwise I still think expecting 2-3% from a smart entry is plausible.
Check back for Entry/Exit Alert to see my recommended entry points.
