Despite both beating estimates, Apple and IBM did not blow away investors like they were expecting, and the market appears ready to open the red. Goldman Sachs, Bank of America, and Johnson & Johnson did not do a whole lot to help change that market view with their earnings this morning as well. The disappointing earnings had come after a week and a half of tremendous earnings from a number of companies, and the disappointment may push the market lower throughout the day.
(anyone remember that iPod thing…)
Currently, we have two open positions in Sallie Mae (SLM) and Huntington Bank (HBAN) with entries of 11.22 and 5.72. Sallie Mae reports earnings this evening, so we are going to be looking to get out of this one today. The stock has not bee given the best day to make a comeback as it is down 1% currently for us. We are adjusting our exit range to take a 1% gain and more. Huntington Bank was our Buy Pick of the Week yesterday, and we are looking for gains of 4-6%. Yesterday, we exited three positions in Entergis (ENTG) for 3% gain, GFI Group (GFIG) for a 4% gain, and Direxion Daily Financial Bull ETF (FAS) for 3%.
We are somewhat maxed out in positions in the Buy category. Therefore, I am going to save our Buy Pick for an Overnight Trade this afternoon, and we will lead off with a Short Sale.
Short Sale of the Day: Seagate Technology Inc. (STX)
Analysis: As I was looking through companies yesterday, I came across something I very rarely ever see…a company with an RSI above 80. 80 and 20 are the extreme benchmarks on the RSI technical scale. As a company nears 80, it is becoming well overvalued. As a company nears 20, it way too undervalued. Above 80 means a company has made such a quick move to the upside that it may be due for a pullback. That company was Seagate Technology (STX).
The company has shot up over 30% in the past two trading days. The main reason behind the push was news that the company may get a major private buyout deal in the future. Analysts estimate that buyout could be between $15 – $18. The stock soared Friday and again yesterday, nearing $16. Today’s weakness in the tech sector is about to challenge the stock.png)
and bring about a chance for some major profit taking.
While the news was very promising for Seagate Tech, a pullback from such RSI levels is definitely expected. Even above 70 on RSI is a redflag that a short should be in order because a stock cannot maintain that sort of momentum. Overvaluation means that a large group of people were demanding something over supplying it. As the price of the stock rises with that demand, the demand will eventually wane at certain levels or with new developments. Once the demand drops, supply will most likely rise or stay the same, creating the drop in price.
STX, this morning, is about to get hit with a major tech pullback on Apple and IBM earnings. The stock could see a large drop in share price, and it has already dropped 1.5% in pre-market trading. The stock’s upper bollinger band, even with the movement, has only made it to the high 14s. The stock’s fast stochastics are over 100. The RSI finished the day at 82.5. Everything is pointing towards pullback. While the news is still relevant, the stock will see more supply than demand today. A push back upwards will be expected on the next big tech day.
For today, STX, though, is a prime short sale candidate. Watch for a Morning Levels alert to get the exact entry range.
Entry: We are looking to short in the range of 15.65 – 15.80.
Exit: We are looking to gain 2-3% to cover.
Stop Buy: 3% on top.
Good Investing,
David Ristau
