Still In the Thick of It

 | Jan 20, 2012 | 7:40 AM EST  | Comments
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As I write this Thursday after the close, I'm watching shares of Google (GOOG) tank 9% in after-hours trading after the tech bellwether reported fourth-quarter profit of $9.50 a share, well below the consensus estimate of $10.45 a share. Turns out that heavy volume decline on Jan. 9 meant something after all. On that day, Motorola Mobility (MMI) issued a weak sales forecast. Since the company is in the process of being acquired by Google for $12.5 billion, investors worried that the acquisition could turn into a headache for Google. Either way, big investors were selling Google on Jan. 9.

Meanwhile, shares of Intuitive Surgical (ISRG) fell about 4.5% in after-hours trading despite better-than-expected bottom-line and top-line growth. Aggressive growth names like Intuitive Surgical are held to a high standard during earnings season, and sometimes a good quarter isn't good enough. Fourth-quarter earnings rose 24% from a year ago to $3.75 a share, but sales growth decelerated from the third quarter, rising 28% to $496.8 million.

The good news was that shares of Microsoft (MSFT) and Intel (INTC) traded higher in after-hours action. Strong performance in these two names cushioned the blow for the PowerShares QQQ (QQQ). It was down only 0.3% in after-hours trading on volume of just over 8 million shares. Good news for the bulls.

So will weak results from Google impede newfound strength in the Nasdaq Composite and Nasdaq 100? Hard to say at this point, but chip stocks continue to act well, and it could be enough to offset Google's big miss.

It will be interesting to see how Friday's session pans out. Options expire today, which could make for a high-volume, volatile session. Will indices open weak and stay weak for the entire session, or will early weakness morph into afternoon strength? It's not out of the question considering how well major averages have been acting since the start of the year.

Don't forget that on Wednesday, the Nasdaq Composite, Nasdaq 100 and Philadelphia Semiconductor Index all staged upside breakouts. In my view, it was the most compelling day for the market since the start of the year. Even if indices suffer losses Friday and volume on the Nasdaq and New York Stock Exchange picks up from Thursday's levels, there's no reason to run for the hills and start raising cash. It takes more than one day of selling to kill a market uptrend. If heavy-volume selling in the indices starts to become more frequent in coming weeks, I'll be concerned, but I'm sitting tight with current holdings for now.

Let's also not lose sight of the fact that we're still early in earnings season. On the heels of strong earnings from Union Pacific (UNP), for example, we should hear more good news from rails like CSX (CSX), Kansas City Southern (KSU) and Norfolk Southern (NSC) early next week.

And don't forget about the strong performance of F5 Networks (FFIV) during Thursday's session. Solid earnings and a nice outlook from the networking-gear maker turned a lot of heads Thursday. Shares gapped up and vaulted 10.6% to $120. After a move like that, you'd think it would be too late to buy F5, but not necessarily. The stock cleared a swing point (recent high) of $117.30. According to the buy rules I follow, F5 was still within buying range as of Thursday's close. It was only 2.3% above the swing point. I consider a stock too late to buy when in it moves 4%-5% past a swing point.

The networking sector is filled with innovators with good growth prospects that could provide additional leadership for this market. Rackspace Hosting (RAX) closed near its lows after early strength Thursday, but it's still in position to try for a breakout over $45.46. Equinix (EQIX) and Solarwinds (SWI) are two other stocks in F5's group with strong potential.

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