We started the day off with a small gap-down and market breadth of about 3 to 1 negative. The bears had an opportunity to gain some ground as the small-caps underperformed once again. Instead, we saw the bulls fight back on low volume. While it was unimpressive for the bulls, it was still a win as we continue to test June’s highs and continue to stay above the 200-day moving average in the S&P 500.
The short-term uptrend is still intact, even though we continue to encounter negative macroeconomic news that made Doug Kass boldly claim we will have the 2nd Quarter GDP of 2.4% revised lower in August. That is terrible news for the markets if that does happen. Furthermore, this is seasonally a slow time and September is historically the worst month of the year for the markets. It is tough to trust the uptrend will continue much further when you combine negative macroeconomic news with the slow season but, we don’t make money by fighting the current trend. All you can do is be prepared to switch gears fast and utilize tight stops.
With that being said, I’m still holding my trading longs such as Orient Paper (ONP), which had a nice move late today to which I booked some profits into. Kodiak Oil (KOG) has been a longtime favorite of mine to trade. KOG continues its bullish move north as crude oil prices increase and positive earnings are expected Thursday. I’m also holding Entropic Communications (ENTR) as it continues to test its 52-week highs. I booked some profits in Sirius XM (SIRI) this morning and will let the rest ride into earnings. SIRI had a decent run-up into earnings, if you bought in the low $.90’s, and was closing in on short-term overbought levels. Later, it pulled back closer to neutral territory. SIRI typically sells off after earnings but in the defense of the sell-offs, it typically has a stronger run-up into overbought territory. However, with the sell-off being the trend this earnings season, unless earnings are spectacular all around, I can’t allow myself to ignore useful discipline and hold a full position into earnings.
I recently initiated a long position in NVIDIA Corp (NVDA) as it has reached 52-week lows after revising earnings expectations lower. At a forward P/E of 12 with almost no debt compared to cash, NVDA has the potential to be a great turnaround story in the highly profitable semiconductor industry. It continues to lose market share and has moved to third on the list with Advanced Micro Devices (NYSE:AMD) and Intel Corp (INTC) above them so it will not be an easy nor quick fix. With the lawsuit no longer being a serious dark cloud overhead, NVDA seems to have more upside than downside potential. However, if the markets sell-off, NVDA will come crashing down with it so be sure to keep that in mind as we enter this seasonal slow time. This is a situation where I feel the negative news has mostly been baked into the lower price and we are currently in oversold territory. I’ll continue to build up this position over time in increments but, I won't fight the trend if the markets have a strong sell-off. Stop losses are your friend.
If the markets turn bearish, I’ll look to my inverse ETF’s such as ProShares UltraShort S&P 500 (SDS) once again as I quickly switch gears. As always, do your own homework to see if you agree. Have a good night and I’ll see you in the morning. Good luck out there.
At the time of publication, Kudrna was long KOG, NVDA, ENTR, SIRI, and ONP but positions may change at any time.
Disclosure: Long KOG, NVDA, ENTR, SIRI, and ONP but positions may change at any time