Mini Flash Crash and Oil's Surge Make for Eventful End to September

Saturday, October 02, 2010

Tuesday's mini flash crash in shares of high momentum technology stocks (AAPL, BIDU, AMZN) marked the short-term top in the market's leaders. My first reaction was to assume that more weakness in the names was likely and that thesis played out for the rest of the week. While I was kicking myself for selling AAPL at $283 on the way up as it powered higher almost hitting $295, shares are now back below my sale price and presenting opportunity once again.

My general mentality is to buy this pullback in the leaders. That is clearly easier said than done if risk control is your number one priority. I still think AAPL is a $325 stock and $270 looks like a fairly defined level that would be a gift to traders if the price becomes available. Tuesday's flash lows were $275 so that price may attract some buyers. I haven't ventured back in yet but I'm closely watching.

C'mon RiM, pull it together

Is Research in Motion (RIMM) really this slow and/or stupid? Shares gained 2.7% this week as the announcement of Playbook (RIMM's competitor the iPad) excited investors this week. Yet, RIMM plans to release the Playbook in early 2011 right around the time Apple will likely be putting the finishing touches on its second generation iPad. How many people have you heard say they would love an iPad but they're going to wait for the second generation? I must ask, what are the guys over at RIMM thinking? This will quite possibly be the worst time to release the Playbook. For the Playbook to gain any traction I would have to think it needs to hit markets ahead of the iPad. This is another stumble in the long, slow decline we're witnessing in this company.

Sticking with oil companies for October

The trade for October looks like it may be in the oil sector. Crude oil surged over $5 for the week for a huge 6.8% jump. The Department of Energy released very bullish inventory data showing large, unexpected draws in stockpiles. I anticipated this rotation into energy well and started buying some oil names on Wednesday morning (SLB, CXO, TDW, WFT) and was rewarded when the data surprised traders and fueled buying in energy markets. Gasoline and heating oil also vaulted 7.9% and 7.0% for the week, respectively.

Oil prices were very tame throughout nearly the entire month of September as the equity market rallied 8.8% for the month. Only in the final days of the month did oil prices begin to reflect the much more optimistic sentiment about the global economic recovery equities have started pricing in. Oil's participation in this rally has swayed me to the bullish camp as the S&P teeters with some indecision around the 1,150 level. The energy sector as tracked by the Select Sector SPDR (XLE) has been lagging broad market down year-to-date against the S&P 500's 2.8% gain. With crude back over $80 per barrel I am sticking with this oil trade and will be looking for higher prices throughout the month of October. I typically struggle when trading commodity names because of the characteristically streaky price action but hopefully I can hone my feel for these stocks this month.

Note: Tidewater's (TDW) action on Friday was less than encouraging as worries mounted about their 3Q earnings and shorts pressured shares lower. Neil Carvin had a great write-up at Seeking Alpha on the company. With a 13.5% short interest shares may continue to be volatile. I am still positive on the space and with the world's largest servicing fleet TDW should be a derivative beneficiary of higher oil prices. I won't let the losses add up though if downward momentum picks up.

Brandon R. Rowley
"Chance favors the prepared mind."

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