About 20 years ago, I had a colleague who was a strict fundamentalist. For example, if a company has reported good earnings, he believed the stock should go up -- and he believed this regardless of whether the stock had, say, already rallied $5 into the report. I certainly read and care about the fundamentals, but I view the market through a technical perspective. I would try and explain to him the concepts of "sell the news" or "it's already priced in." For some reason, though, he never seemed to grasp this concept.
I thought of this last week when I saw the action in Under Armour (UA). Not only did the company beat earnings and raise guidance, but Standard & Poor's also gave it the nod for entrance into the S&P 500 in the coming weeks. Yet the stock has still slid just over 10% since those earnings were released.
I can envision my former colleague becoming quite frustrated over this development. But the reality is that, for over six weeks now, it hasn't been safe to own any stock that has been over-owned and considered a momentum name. There is no discrimination when it comes to these downside moves. To be fair, though, there had been little discrimination on the way up, either.
For the past five years, if any stock has opened down on earnings or any news, be it good or bad, that stock has been a buy. Over time, as I have previously noted, this sort of action has created an entire generation of investors who see any selloff as a buying opportunity, and who believe selling is never an option. Yet 2014 has thus far shown us that markets -- or, shall I say, stocks -- can indeed go down.
As for UA, my guess is that the stock will bounce from somewhere close to the uptrend line on the chart (which currently comes in around $47-ish). The problem now facing the UA chart is that there is a head-and-shoulders top. If it is to overcome this, it will need to do a lot of sideways work in the next several weeks and months. Should the stock break that line, the target price will be much lower than current levels.
More broadly, it seems the market is once again concerned over the situation in Ukraine. Let's face it: Markets hate uncertainty, and if there is one uncertain situation in this world, Ukraine would be a place to point a finger.
In the meantime, on Friday the put-call ratio zoomed right back up to 114% -- the highest reading since the 115% ratio on April 11. In addition, the Overbought/Oversold Oscillator says the NYSE should see one more rally early this week.
Right now, the S&P 500 is in the middle of nowhere. It's not low enough to have broken the mid-April lows and produce any sort of positive divergence, so I still view the upside as limited.
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At the time of publication, Meisler had no positions in the securities mentioned.