Today's Market: What Momentum Stocks To Play Ahead Of Twitter IPO

Includes: BIDU, FB, MSFT, TSLA
by: Matthew Smith

The industrial numbers out of Germany were strong this morning and that is why Europe is trading strongly higher. Germany is the strongest economy in Europe, it has been for years and shall continue to be so long as they keep their fiscal act together and the conservative business models that have served their companies so well. As we look at Europe we see the southern economies beginning to bottom out while their northern counterparts begin to see turnarounds take hold. Germany has obviously been the bright spot throughout this entire downturn, but we suspect that 2014 and 2015 will see the United Kingdom continue to recover with some spillover into Ireland along with a slow recovery in France - even with their current leadership in place.

Looking at the U.S. markets, we see an exciting end to the week with a ton of economic data due out in the next few days and arguably one of the largest IPOs of the year debuting. The Twitter IPO promises to dominate headlines, and our guess is that it will have an impact upon many of the momentum stocks we follow. The impact upon the internet names should be real, and if the IPO is successful we should see names from Facebook (NASDAQ:FB) to Baidu (NASDAQ:BIDU) to LinkedIn (LNKD) do well.

Chart of the Day:

The U.S. dollar is gaining strength against the Euro in recent sessions as some of our political issues have cleared up and it appears that the Europeans are content with keeping rates low and dealing with the possibility of inflation for the time being as they inflate their way out of the current slow growth environment. It is something they have been loathe to do in years past, but thus far the plan has worked and it is our belief that they will keep rates low to enable the members to the south to grow their way out of their debt issues.

(Click to enlarge)

Source: Yahoo Finance

We have economic news today and it is as follows:

  • MBA Mortgage Index (7:00 a.m. EST): Est: N/A Actual: -7.0%
  • Challenger Job Cuts (7:30 a.m. EST): Est: N/A Actual: -4.2%
  • Leading Indicators (10:00 a.m. EST): Est: 0.6%
  • Crude Inventories (10:30 a.m. EST): N/A

Asian markets finished mostly higher today:

  • All Ordinaries -- up 0.01%
  • Shanghai Composite -- down 0.82%
  • Nikkei 225 -- up 0.79%
  • NZSE 50 -- up 0.12%
  • Seoul Composite -- down 0.01%

In Europe, markets are trading higher this morning:

  • CAC 40 -- up 0.85%
  • DAX -- up 0.43%
  • FTSE 100 -- up 0.06%
  • OSE -- up 1.03%

Tesla To Open Lower This Morning ...

One momentum stock which has seen forward momentum stall out on is Tesla (NASDAQ:TSLA) which reported quarterly results last night after the market close which disappointed investors. The company beat on their EPS figure, but the glaring issue was the weakness between their actual deliveries and those expected by the Wall Street analysts. Also of concern was the weaker guidance the company gave for the upcoming quarter. This is all taking the air out of the company's sails right now, and when coupled with the recent bad press the company has received regarding the batteries starting fires during accidents has put a damper on investors' enthusiasm.

Tesla shares are quoted below $160/share in pre-market trading, but we would point out the support the stock has enjoyed at that level numerous times and believe that we could see that support come into play during today's session. If it does not hold, then Tesla might have some serious problems moving forward.

(Click to enlarge)

Source: Yahoo Finance

But Facebook Could See Some Bids This Week ...

Although one would suspect many of the momentum stocks to see investors cashing out as they move to gain exposure to Twitter, we think one momentum name that will catch a bid is Facebook . Facebook is further ahead on the monetization curve than Twitter and if we see Twitter rally strongly in its first day of trading then logical reasoning would indicate that Facebook was worth more than investors thought. The weakness caused by the most recent conference call and management's comments regarding teen utilization might have created a perfect buying opportunity heading into the latest social media IPO.

Readers and investors also need to be aware of the situation with the tail wagging the dog, which could very well be the case on Twitter's first day of trading. There are many new ETFs out there these days that track such things as the first year's return on IPOs to the social media business. One can bet that a positive move in Twitter will have an impact upon these types of ETFs and would then have an impact upon the individual securities which make up the ETF. If it were our money, we would not be chasing Twitter on the first day of trading, but rather buying Facebook the day before Twitter started trading.

Other names to consider would be Chinese search engine giant Baidu and U.S. social media business site LinkedIn. Both names are in some ETFs and mutual funds which could see an uptick in interest on the back of a successful Twitter IPO.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.