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The Strongest Sectors Right Now

Despite some strength this week, there are some sectors that are showing more opportunity than others


Stocks swept higher again on Thursday in mostly subdued trading as global risk sentiment improved following better data out of China, Spain and Italy. All sectors moved higher, led by financials and energy.

The main reason for the shot higher was the macroeconomic backdrop, according to analysts at StreetAccount. In China, the focus was on the better-than-expected December trade data, which alleviated some of the concerns surrounding a global slowdown. Exports jumped 14.1% year over year following a 2.9% increase in November, ahead of consensus expectations for a 5.0% gain. The details of the report highlighted widespread gains across most major market and product groups.

Spain was another bright spot after its Treasury sold just over 5.8 billion euros of sovereign debt in three bond auctions, above the target range. Yields fell versus similar sales at prior auctions, while demand was also stronger. This means that global credit investors are growing more comfortable with the Spanish government’s ability to pay and the European Central Bank’s decision to backstop it.

The U.S. economic calendar did not offer much help however. Initial unemployment claims rose to 371,000 in the holiday-shortened week-ended Jan. 5. This was higher than the 365,000 consensus. Economists highlighted the volatility in claims this time of year due to seasonal adjustment issues surrounding the holidays, so the increase was discounted.

Technology stocks slightly underperformed the broader tape despite a 19% rally in the shares of bedraggled cell phone maker Nokia (NYSE:NOK). The stock was boosted by the company’s positive Q4 preannouncement, citing improvement in both devices and services.

However, Microsoft (NASDAQ:MSFT) fell 1%, dragging down the software group, following a downgrade at Morgan Stanley (NYSE:MS) on concerns about the disappointing performance of Windows 8, the continued weakness in the PC market and the lack of margin upside.

In addition, EMC (NYSE:EMC), the data storage giant, extended its recent underperformance on the back of more cautious analyst commentary. Morgan Stanley downgraded the stock, highlighting concerns about weak enterprise demand. An afternoon bounce in Apple (NASDAQ:AAPL) of 1.2% provided some support for tech.

Retail also lagged a bit, following a relatively weak update on holiday sales. Tiffany (NYSE:TIF) in particular came under pressure after reporting a disappointing holiday with flat comparable store sales. Teen retailers American Eagle Outfitters (NYSE:AEO) and Aeropostale (NYSE:ARO) also reported weak holiday sales and were punished. Urban Outfitters (NASDAQ:URBN) was one of the few bright spots, up 4.6%, after stating that its holiday comps increased 9%, ahead of consensus expectations for 7% growth.

So, while I’m not likely to recommend my Trader’s Advantage members go long retail in the short term, I recently mentioned two names I do like for bullish plays and I’m ready to pull the trigger on one: HollyFrontier (NYSE:HFC).

HollyFrontier is a major oil refiner, and as you can see in the chart above, the stock is recovering from a very oversold condition. The last time that a similar oversold condition was resolved, the stock rallied $10 during the following month. That could very easily happen again, as the refining company stocks tend to move quite rapidly once they get going.

Buy HFC for $43.75 or less. I will likely recommend calls if the stock trades up through $44.90. Wait for that but hold for my $48.50 target and set a stop of $41.85, good till canceled.

InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days. 

Professional traders and hedge funds make huge profits off volatility.  Now, Jon’s service CounterPoint Options levels the playing field with the first service geared towards helping individual traders make steady, consistent profits with the VIX.  Get more information on Trader’s Advantage and CounterPoint Options today.



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