Microsoft, Yahoo and Google -- Oh My!

Traders bid shares of Yahoo higher than the figure cited by would-be acquirer Microsoft as pressure builds for all parties involved.

For Microsoft the pressure is to close the deal and better challenge Google on its own turf For Google, offering its services as a sort of White Knight for Yahoo!, the company looks to fend off its main rival in the Redmond software giant. And Yahoo CEO Jerry Yang is under pressure from shareholders who are increasingly friendly to the idea of a Microsoft acquisition.

While many stocks have Long Term PowerRatings that have increased as the stocks moved lower, Google has been in that other group of stocks that has seen its PowerRating actually go lower as the stock has become cheaper in dollar terms. Because of the edge involved in buying high PowerRatings stocks when the market puts them on sale, the fact that Google's PowerRating is falling rather than rising is not an encouraging sign for holders or potential buyers of the stock.

It may be the case that Google has "more pullback" to go before we see its PowerRating reverse direction and begin climbing again. Over the last few days of the week, Google's PowerRating crept up from 6 to 7. More of that kind of action will make Google a stock that investors can once again start thinking about.

Like Google, Microsoft has also seen its PowerRating decline as the stock has moved lower, falling below its 200-day moving average. This means that the stock is becoming less likely to outperform the average stock in a year's time--and less likely to be the sort of stock to be buying right now. Unlike Google, Microsoft's recent trading has yet to show the sort of initial turn around that would give the stock a higher PowerRating and make it more attractive for investment.

The movement in Yahoo's PowerRating, of course, is affected by news of Microsoft's unsolicited bid, which caused the stop to gap up some 10-odd points on the first day of February. And while traders bidding shares of Yahoo higher than Microsoft's already generous $31 per share number suggests the company may be more in play than Microsoft's sole offer, the stock's Long Term PowerRating of 3 in recent days is another reminder for investors to pass on trying to arbitrage Yahoo, and instead focus on the real opportunities in high PowerRating stocks.

CME Gets Smashed

No good news goes unpunished during corrections, it seems, as news that the Chicago Mercantile Exchange Group had nearly doubled quarterly profits was followed by rumors that the Justice Department viewed exchanges that did their own clearing as essentially an unfair monopoly. The rumor turned out to be a report from a sole official, and an analyst of the stock insisted later in the week that fears that the Justice Department would dismantle the CME--or interfere with the CME Group's plan to merge with the New York Mercantile Exchange or NYMEX--were overblown.

Unfortunately for investors in CME Group, the relief did not come until after the stock plunged more than 17%. The Short-Term PowerRating chart of CME was actually very telling. The stock's Short Term PowerRating fell to a 4 in late December. And as the stock rallied sharply over the next two days, CME Group's PowerRating fell to a 3. This revealed the stock to be significantly below-average in the short-term and a stock that short-term traders should either avoid or even look to bet against.

The stock closed lower for four consecutive days afterward. Within a week after that, CME Group had fallen from the $600 level to a closing low just north of $500.

Bottom Building

So far so good, as even a down week in the markets has failed to take us below the lows of January. The market needs to make a higher low if it is to move sustainably higher and the only way to do that is to experience a correction somewhere along the way up. Until further notice, this week's correction was it.

The Long Term PowerRatings for the SPY are good and the Long Term PowerRatings for DIA are even better. The exchange-traded funds indexed to the performance of the S&P 500 have earned a PowerRating of 8 during this most recent pullback and, over the same time period, the ETFs based on the Dow Jones Industrial Average have earned a PowerRating of 9.

Even the Nasdaq 100 ETF tracking stocks, QQQQ, has an above average PowerRating of 8.

This is good news for those who have been following our TradingMarkets Path to Professional Trading course, and its lessons on trading pullbacks. (Click here to register. It's free.) Blue-chip stocks are increasingly on sale and the Dow Jones Industrials have not been this oversold on a long-term basis since the spring of 2005. It's worth noting that the spring of 2005 represented the higher low in the 2004-2005 bear market, which preceeded the powerfully bullish markets of 2006 and first three quarters of 2007.

Stocks in the News

News of stocks this week included a massive drop in a futures exchange, more cautious outlooks from the technology sector, and some interesting high Long Term PowerRating opportunities for investors.

Archer Daniels Midland (ADM | Quote | Chart | News | PowerRating) reported a rise in second quarter net income this week, a gain of more than 8% year over year. The stock's Short Term PowerRating has climbed from 4 to 7 over the past few days as ADM has pulled back toward its 200-day moving average.

Analysts fear a fall in Toyota (TM | Quote | Chart | News | PowerRating) shares as the Japanese automaker reported the smallest profit growth in a year. The rising value of the yen and slowing U.S. economy were blamed. Toyota's Short Term PowerRating improved from 3 to 4 this week as the stock pulled back from a test of resistance at its 200-day moving average.

CME Group (CME@CME | Quote | Chart | News | PowerRating) reported nearly double quarterly earnings due to increased trading volumes. Rumors of new Justice Department regulations involving the exchanges financial transations threatened the stock mid-week. The stock's Short Term PowerRating has been 5 or 6 all week, making it less attractive for a trade on a short term basis compared to other opportunities.

Walt Disney (DIS | Quote | Chart | News | PowerRating) beat estimates this week thanks to increases in revenue from theme parks and cable networks. While the stock's Short Term PowerRating is a below-average 4, the stock's Long Term PowerRating of 10 makes Disney among those stocks that are much more likely than the average stock to be higher in a year's time.

Suffering its seventh consecutive quarterly drop in revenues, Toll Brothers (TOLL | Quote | Chart | News | PowerRating) reported that demand for new homes continued to be soft. The stock's Short Term PowerRating has increased from an unattractive 2 to a respectable 7 as of this writing. But perhaps it is the stock's lowly, Long Term PowerRating of 3--just as the stock is rallying into its 200-day moving average--that tells a more complete, and important, story.

Cisco Systems (CSCO | Quote | Chart | News | PowerRating) led technology stocks lower earlier in the week as a more cautious outlook overshadowed news of the company's higher quarterly profits. Short Term PowerRatings, it should be said, played a very helpful role in warning traders against chasing the stock's bounces higher over the past few months. Twice since December, Cisco's Short Term PowerRating slipped to an "Avoid Buying" 3. Cisco shares were lower in one-day, two-day and one-week timeframes in both cases.

Sales were up at PepsiCo (PEP | Quote | Chart | News | PowerRating), but quarterly profits down in the company's earnings report this week. PepsiCo's Short-Term PowerRating has slipped lower as the stock moved below its 200-day moving average in January, where it remains. However the stock's Long Term PowerRating of 9 marks PepsiCo as worth consideration for those looking for a stock more likely than the average stock to be higher in a year.

What to Look for Next Week

Monday: None
Tuesday: Same Store Sales
Wednesday: Retail Sales / Business Inventories
Thursday: Jobless Claims / Money Supply
Friday: Industrial Production / Consumer Sentiment

Best Performing Stocks (PR 8-10) of the Last Five Days

Here are some of the best performing, high Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 8, 9 or 10.

Walt Disney (DIS@DIS | Quote | Chart | News | PowerRating). Long Term PowerRating 10
Energy East Corp (EAS@EAS | Quote | Chart | News | PowerRating). Long Term PowerRating 10
Kellogg Company (K@K | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Abbott Laboratories (ABT@ABT | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Bristol Meyers Squibb (BMY@BMY | Quote | Chart | News | PowerRating). Long Term PowerRating 8

Worst Performing Stocks (PR 1-3) of the Last Five Days

Here are some of the worst performing, low Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 1, 2 or 3.

ABFS Arkansas Best Corp (ABFS@ABFS | Quote | Chart | News | PowerRating). Long Term PowerRating 3
Baidu.com Inc. (BIDU@BIDU | Quote | Chart | News | PowerRating). Long Term PowerRating 3
Avid Technology Inc. (AVID@AVID | Quote | Chart | News | PowerRating). Long Term PowerRating 3
Centex Corp (CTX@CTX | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Riverbed Technologies (RVBD@RVBD | Quote | Chart | News | PowerRating). Long Term PowerRating 1

David Penn is Senior Editor at PowerRatings.net