While equities have rallied significantly off their opening lows, the remain lower on the day. Overnight, there were numerous pieces of bad data released out of Europe, including multiple bond auctions that were met with very weak demand. As a result, U.S. Bonds are significantly higher today, up over 1%. Much of this rally could be viewed as international money entering “safer” fixed-income markets. While bonds are soaring, equities are currently only modestly lower. The Nasdaq is the relative leader, trading near flat on the day, while the S&P 500 and Russell 2000 are each about 0.2%. Metals are miners are each slightly higher, as the lingering fear is driving money into the perceived “safety” sectors.
CHART OF THE DAY
Apollo Group (APOL) – The eduction company has been very weak as of late, down about 20% year-to-date and about 60% over the past 52 weeks. However, despite this weakness, there are signs that it could be setting up for a sharp bounce. Just last week, APOL reported blowout earnings, and the stock gapped significantly higher. However, this short-term strength was met by a handful of downgrades and analysts lowering their price targets a few days after this report, and the stock dove on those unfavorable outlooks. As a contrarian, this is exactly what you want to see — skepticism despite very strong numbers and price action.
In addition to the recent downgrades, bears continue to pile on. Currently, short interest is over 17% of APOL’s float, an all-time high. Now that the gap higher from earnings has been filled, it could be time for these bears to cover their positions. I like a long entry here with a stop on a close below 17, the current site of the 20-day moving average. I would initially target a move to 20, with 22 as a stretch target.
WHAT I’M EXPECTING
A continuation of the headline-driven market. Keep a short leash on all of your positions and don’t get over-exposed to one side of the market.