While
the S&P closed on Friday 41 points off yesterday’s low, the index still
finished down 0.8% for the week.
Thursday’s low marked a 4.6% drop from the highs made just a couple
weeks ago, but I think that low of 1926 will be support for the rest of the
year. It took a lot of trial and
error, but 1926 happens to be the current 120-day moving average, which is a
level that the S&P has not closed below since November 2012. In fact, since that time, the S&P
bounced off that level 8 straight times, including thrice this year alone. The fact that the market rallied almost
2% in the last 1.5 days makes me incredibly bullish for the rest of the
year. The markets were already
oversold, but given the ebola concern, problems with Russia/Ukraine, a slowdown
in China, a slowdown in Europe, protests in Hong Kong, a weak US housing
market, and a strong dollar, the S&P should not have rallied that much,
which makes me believe the markets are headed for another new all-time
high. With that said, in order to
really be in the clear, I need to see the S&P close above 1975, which was
the previous support level. If
stocks can’t close above that level this week, then I expect the S&P to
make one more push lower to the 120-day moving average before rallying into
years end. Q4 earnings kick off
next week and I believe that will be the catalyst to take the markets higher.
With
all the Alibaba hype over the last few months, I feel like I should mention
it…so there, I mentioned it.
Forget Alibaba because the best IPO this year is in the auto sector,
Mobileye. The company engages in
the provision of automated driver assistance technologies. In short, they have revolutionized the
future of the auto industry by helping drivers improve safety and avoid
accidents. Mobileye’s technology
can be found in cars made by BMW, General Motors, Volvo, Ford and many
others. Not only are they going to
be the biggest player in driverless car technology but right now their
technology is what controls lane departure warnings, pedestrian collision
warnings, speed limit indications and more. Last quarter, Mobileye reported a $0.01 earnings beat of
$0.05/share and revenues increased 90% to $33.7M, also above estimates. On the earnings call, management said
that their technology was already installed in 3.9M vehicles and expects to be
in 160 car models by the end of the year, and 237 by the end of 2016. While a majority of their sales are to
car manufacturers, they are growing in the after market where their systems
need to be professionally installed, however they predict that by early 2015,
they will have self-installation systems available in retail stores.
This
stock is not for the faint of heart.
If you are someone that watches the market every single day, and may not
be able to handle a sudden 5% drop, then you may want to stay away. But if you are someone who wants a very
high growth stock with a lot of volatility then Mobileye is the way to go. Now, the stock is already up 60% from
where it opened on its IPO day, having closed on Friday at $57.70 after hitting
a new all-time earlier in the day.
So I do not recommend going out and buying it right now. Instead, be patient and wait for the
stock to come in a little bit, and buy in blocks. I would look to buy 25% of your position around $54 and then
the other 75% if the stock gets back down to $50, which is right around the
61.8% Fibonacci retracement and a strong support level over the last couple
weeks. This stock, along with
GoPro tend to trade by themselves, being the new momentum names, so just
because the market is rallying, doesn’t mean Mobileye is going higher. My advice is to put in your orders now
so that if the stock sells off, you’ll already be in position to buy it.
I
put my money where my mouth is last week and bought NXP Semiconductors with an
average price of $66.22. It only
made sense that as soon as I recommended it, the stocks suffered one of its
worst weeks in months, despite also receiving an upgrade and price target increase
by Sterne Agee. I thought the
sell-off was nothing more than profit taking and took advantage of that.
A
couple months ago, I wrote an article about how you need to be ready to take
advantage of completely irrational reactions by certain stocks to news
stories. My case in point was just
this week when every airline and cruise stock got hammered on reports that an
Ebola case was found in the US. Does
anyone really think that people are going to cancel their trips or decide not
to take a vacation because of an Ebola case? The
sell-off was ridiculous and I took advantage and added to my position in Delta
Airlines. Delta has rallied about
8% since the low on Wednesday’s sell-off and most of the other airlines are up
similar amounts.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA),
Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL)
Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM),
ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto
Networks (PANW), Twitter (TWTR), and NXP Semiconductors (NXPI).
Jeff Lewison
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