On Friday, the Fast Money traders took a close look at the divergence in technology, trying to better understand the strength in IBM versus the weakness in Google.
A strong outlook and impressive margins not only drove IBM higher, as a Dow component,IBM earnings drove the whole Dow Jones Industrial Average higher.
By contrast, Googleearnings showed that profits and revenues missed expectations, which in turn triggered a sell-off not only in Google shares but the S&P broadly.
"The valuations in an old-tech name like IBM support more appreciation, while a higher-growth name like Google had higher expectations to outshine," explains Lawrence Glazer, managing partner at Mayflower Advisors in a Reuters interview.
Microsoft also landed in the mix after Microsoft earnings showed that profit had slipped due to lower computer sales but results were still better than the Street expected.
How should you trade the moves?
Strategy Session with the Fast Money traders
Trader Zach Karabell thinks the differentiation is a sign that stocks are starting to trade on their results and not Europe jitters or some other maco-catalyst. “It’s a really good thing for investors who want to invest in a market that moves based on how companies are doing.”
If you’re looking for a trade, Karabell thinks the best play is long Big Blue. “I think IBM is the real deal – it’s at the apex of global transformations,” he says. “I see IBM as a driver of transformation and efficiencies of global business. It’s a name you must and should want to be in.”
DocJ thinks Google is attractive on the sharp sell-off. “It’s not a broken company. I think it’s a buy on dips. Certainly I like Google a lot more today ($60 lower) than yesterday.”
JJ Kinhan agrees. “Google had a huge run. The sell-off takes the stock back to levels at which it was trading in the beginning in December,” he says. “I think it’s being oversold to the downside.”
But rather than buy the stock outright he thinks an options trade makes more sense, to limit downside. “I’d sell the 570 puts – collect the premium and protect against another wave of selling.” (It’s important to note, by selling 570 puts Kinahan would be compelled to buy Google at $570 – a level he finds attractive.)
If you want to play Google, Steve Grasso says wait. “I’d rather buy Google above $600 on momentum rather than as a value these levels.”
Looking at Microsoft, trader JJ Kinhan thinks the action over the next few days could be very interesting and telling as Microsoft approaches $30, a level of past resistance.
He says if it can get up and over, we’re looking at a technical break-out and there could be a lot more upside. However, $30 could again generate strong resistance and the stock could slide.”
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Trader disclosure: On Jan 19, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns WFT; Grasso owns XLU; Dicker is long SLB; Dicker is long BHI; Dicker is long HP; Kinahan is long C; Kinahan is short GS; Kinahan is long XLU; Kinahan is lng CSCO; Kinahan is short YHOO puts; Kinahan is long MSFT; Karabell is long AAPL; Karabell is long IBM; Karabell is long GOOG
For Steve Grasso:
Stuart Frankel & Co and it’s partners own CSCO
Stuart Frankel & Co and it’s partners own CUBA
Stuart Frankel & Co and it’s partners own GERN
Stuart Frankel & Co and it’s partners own HPQ
Stuart Frankel & Co and it’s partners own HSPO
Stuart Frankel & Co and it’s partners own MU
Stuart Frankel & Co and it’s partners own NYX
Stuart Frankel & Co and it’s partners own PRST
Stuart Frankel & Co and it’s partners own WFT
Stuart Frankel & Co and it’s partners own XRX
For Zach Karabell
RiverTwice is short XLF
RiverTwice is short CF
For Ken Sena
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Kilburg is long TLT
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