Epiphany Research

Energy Names

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

We talked about the bullish setup in the energy stocks in our daily report sometime last week. In spite of a rash of bearish distributive patterns forming in the sector over the last several months, especially in the service sector, we did see breadth hold on and approach new highs. We stated that this group may end up looking a lot like the utility sector last year if crude oil prices move out turn up and act as a bullish catalyst.
Here are several names in the sector that look interesting.

Thank You Sarbanes Oxley!!

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

In the history of bad regulation by government bodies Sarbanes Oxley has got to be the crown jewel. Every since this nightmare set of rules was put into law earnings season has turned into a minefield. You never know when your going to step on the wrong company and get your leg blown off.
The original idea was to level the playing field and make it so that everyone got important company info (like quarterly reports) at the same time (one aspect of this regulation). This way the institutional traders wouldn't have an unfair advantage over the small investor. Now companies won't say a word outside of official announcements for fear of landing in the cell next to Ken Lay. What the law makers didn't understand was that there was a system in place. The company would give the wink and nod to analysts numbers and expectations and the information would disseminate through the system. The stocks would build in these expectations and when the company announced any surprises were somewhat adjusted for. Smart traders, large and small, could anticipate problems and get out in front of them.
Now, no one has any idea whats happening until the company announces it. The problem with this is that any adjustments that may have helped ease the hit are gone and its all happening in one day. Small investors are getting run over by institutional traders on the way out the door. We've seen it happen so many times now that earnings season is turning into a complete mess.Check out the earnings last night from AQNT, and  WFMI.

What to Sell on Weakness

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

When this market decides it wants to correct (whenever that is) we believe you should take a look at shorting the high relative strength stocks that are showing divergent momentum. At each market downturn in this market cycle we have seen good performance out of this trade. The idea is simple. These are stocks that have had a good run, they're up so we'll see quick profit protection kick in, and they're slowing down within the uptrend. This is a good combination for a breakdown. The only negative is that there is a reason why these stocks are up in the first place and you have to watch for a resumption of strength. A quick stop at the highs should provide a suitable risk-reward scenario.

Here's an example : AEOS

Here's a couple of names :
WCG
NVDA
CTSH
AAPL
AZO
TROW

Charts We Like

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

Here are some large-cap charts that continue to look attractive. We have harped on the bifurcation in this market enough so I won't bore you with the reasons why you should be buying large-cap stocks. We're putting out  the bullish screen of S&P 4 & 5 star rated stocks today. This list is dominated by large-cap names and is a good place to look for longs.

Here are some names:
BAY
FISV
MU
VCLK
UTX
KFY
CSL
NWL
STA
ADP
MOT

Early Change In PC Related Stocks

Scott Maragioglio (212-692-6392) smaragioglio@epiphanyresearch.com

We're seeing the strength in tech start to trickle down into the PC related names. Yesterday we highlighted the emerging strength in MU as well as the Bullish long-term bases in WDC and STX. The strength in HPQ isn't a surprise to anyone at this point either. We're starting to see some bullish interest come into INTC as well. The stock has turned up from a solid looking short-term base. The long-term look is not as bullish as many stocks in tech, but this may be some early emerging strength. If we take this one step further than we might want to take a look at DELL here. No one likes this stock, but PC stocks are improving and this stock may be washed out. It seems likely that everyone who wanted out of this name is out and everyone who wants to be short is in. The surprise here would be a turn to the upside. If DELL gets a lift along with the group then it may carry a bit on the short covering.

Big Bases

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

In spite of the weakness generated by the June-July correction we are seeing a lot of large bullish base formations in the tech space that have broken out to the upside and retested recently. A couple of interesting examples are HPQ, MOT, and Oracle (weekly bases), as well as WDC, STX. In the Biotech space we would suggest looking at AMGN.

Cisco Systems

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

Is anyone on Wall Street still doing fundamental research on the buy side anymore? We have to wonder after seeing Cisco systems growth this quarter (story). Accounting issues aside the company grew the top line by 20%!!?? This really catches my attention since the stocks has been just about the weakest thing out there. It occurs to us that no one saw this coming. The stock is up 10% after market so far. How does a company the size of Cisco slip a strong quarter by the street?

Media's Comeback

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

Media stocks are making a comeback. This is just about the last group any investor anywhere was thinking about. Take a look at NWS, DIS, and CMCSK. These stocks are emerging from very long-term bases and are getting back on the offensive. It appears to us that the "cycle of life" has come back around in the media sector's favor. This is a long forgotten group that has wrung out all of the weak hands and is now turning up on improving business prospects for the sector.

What's Up With Oracle?

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

Have you looked at Oracle lately? This stock is trying to breakout from a base formation while the rest of the large-cap tech stocks are being beaten to death by the short sellers. ORCL is showing some relative strength vs. the technology sector here. From what I hear business at the worlds largest enterprise software company is picking up and the company has done well with the acquisition strategy it has pursued over the last couple of years. The news must be good for this stock to be finding a bid in this technology environment.

Tech Fundamentals

Scott Maragioglio (212-692-6392) smaragio@epiphanyresearch.com

Its hard to associate any strong fundamentals with the technology sector right now considering the crushing blow the group has taken during this correction. This is certainly a group that traders "love to hate" right now, but take a look at this article about a possible flash memory shortage developing by the end of the year. I always find shortages in commodity products like this interesting since the memory is going into some kind of tech gear. Here is the article

Check out the chart on Micron (NYSE: MU) this stocks held up very well in this correction and showed strong relative strength vs.the market as well as the tech sector. I'm sure this projected memory shortage has something to do with it.