Be Wary of Re-Focus on European Instability

The market opened lower this morning after news of a weak Italian debt auction but was able to rally back to near the flat line. The character of this market for the last few weeks has been choppy, yet ultimately resilient. The S&P remains a hair below its all-time closing high after today’s 0.06% loss.

Concerns are lingering about the implications of the precedent-setting Cyprus bailout as the country’s banks get set to open tomorrow. The banks have remained close due to the fact that large deposits at Cypriot banks are set to be taxed under the bailout agreement. Many fear that we could see bank runs in Europe if depositors grow worried their deposits being taxed. The major US indices seemed to shrug off those fears today in a quiet session, but weakness among the financial stocks indicates there is still some pent-up anxiety about recent events across the pond.

The action remains very stock specific during this holiday shortened week, the last trading week of the first quarter.

Facebook (NASDAQ:FB) had an impressive day today, triggering a potential Red Dog Reversal trade after recent weakness. A Red Dog reversal triggers when an oversold stock trades down through the previous day’s low and then back above it, with an entry at that previous day’s low and a stop at today’s low. Today’s 3.51% surge in FB could be a start of a bigger move in a stock that has underperformed since mid-January.

UnitedHealth (NYSE:UNH) had an impressive move today, gaining 1.74%, and looks like it could potentially break out of a macro wedge pattern over the next few weeks. Warren Buffet owns a healthy chunk of UNH stock, which helps add to long-term conviction in the stock.

Monsanto (NYSE:MON) has emerged as the standout performer in the agricultural sector. After pulling back from highs over the last two weeks, MON woke up in a big way yesterday and continued today, surging 1.28%. If you zoom out to the weekly chart, you can see MON breaking out of a nice mid-level base.

The mortgage servicers have also staged an impressive comeback this week after big pullback off highs. Ocwen (NYSE:OCN) is the biggest company in the group and had one of the most extreme sell-offs, but has rallied impressively this week. Nationstar (NYSE:NSM) didn’t sell off quite as hard, but is also recovering well. These are hard to buy right here after three strong up days, but with some consolidation these could potentially set back up again.

By John Darsie

Disclosure: No relevant positions

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