Selling Into The News
When a stock sells off on positive
news, watch out. You seldom receive more a bearish sign than a market that
dismisses apparently strong fundamentals.
Applied Materials
(
AMAT |
Quote |
Chart |
News |
PowerRating) Thursday
shed 2 7/8 to 69 1/4 on heavy volume. After Wednesday’s close, the company
reported net income surged to 70 cents a share in the July 30 third quarter from
operating net of 31 cents a share a year ago. The results surpassed analyst
estimates averaging 68 cents a share, according to First Call/Thomson Financial.
Sales climbed 83% to $2.73 billion.
Notice how shares in Applied Materials
rallied to an intraday high of 73 3/16 on the news, then ran into a bout of
selling that drove the stock into the red. The stock closed bearishly below the
open and in the lower third of the day’s trading range. I wouldn’t go near this
stock for a long trade unless it overcomes resistance at 98 1/2 (see Point
A in chart). This stock is a potential short candidate if it
undercuts support at 64 3/4 on strong volume.
We’re talking about the world’s
biggest maker of chip gear. For those who require further evidence that the odds
are turning against semiconductor industry share prices, you can find plenty of
confirming weakness elsewhere. The Philadelphia Semiconductor index
(
$SOXX.X |
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Chart |
News |
PowerRating)
fell 2.2%. Rival KLA-Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating) gave up 3 7/8 to 42 3/8, Micron
Technology
(
MU |
Quote |
Chart |
News |
PowerRating) to 6 3/4 to 75, Novellus Systems
(
NVLS |
Quote |
Chart |
News |
PowerRating) 1 11/16 to 43
7/8 and Rambus
(
RMBS |
Quote |
Chart |
News |
PowerRating) 3 1/2 to 70.
Reading the market’s reaction to news
from AnnTaylor Stores
(
ANN |
Quote |
Chart |
News |
PowerRating) is more difficult. The women’s apparel retailer
reported net income of 45 cents a share vs. 39 cents a year ago and estimates of
45 cents. Analysts raised forecasts earlier this month after the company said it
expected earnings to slightly exceed estimates. Despite the news, the stock fell
with its peers, although it managed to recoup most of the losses by the end of
the day.Â
The stock may be basing here. But
given the weakness in retail
(
$RLX.X |
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Chart |
News |
PowerRating), I’d stay away. The stock can move
higher from here, but the odds are against strong momentum moves. If you do want
to play the long side of AnnTaylor, insist that any breakouts come on strong
volume.
All stocks are speculative and risky.
On any new trade, be sure to set an initial protective stop where you will sell
your new buy or cover your short in case the position turns against you. Also
limit your exposure with proper position sizing. For an introduction to stops
and position sizing, check out my lesson, Risky
Business.