Howdy everyone. Are you enjoying back to back (to back) gains from Tuesday, Wednesday, and today? Great - enjoy 'em while they last, because I've got a feeling today's strength is close to the end of the bullish line for a few days. Don't sweat it too much though, because I doubt any pullback is going to last any longer than the three-day rally has. Yeah, welcome to summer, when the market can't decide what it wants, and the best trades are made by zigging when everyone else has zagged. We'll take a detailed look at a chart for you in a second, but first I want to tell you we've got another trading idea for you today, plus a review of what Q2's earnings are apt to look like at the sector level. You might be shocked at which groups are poised to do well. Anyway, about this market... I've been saying it for a while now, but it bears repeating today - this market is one that rewards getting in after small dips, and getting out after small rallies. There are no big, long-term moves to tap. That's my subtle way of saying today's gains are a profit-taking opportunity, and if you're into it, a shorting/bearish setup. We've been talking about the NASDAQ Composite's ceiling at 2980 for a few weeks. Though it didn't quite get tested today with today's high of 2968, the market's already starting to have second thoughts about leaving behind a gap at this morning's open. And, given how the overall market's gained more than 3% since last week's low, I'm expecting the zig-zag pattern we've seen play out since the beginning of June to repeat itself now. Oh, we might get a little more upward-biased drift, but by and large the bulls seem to have emptied their fuel tanks. My guess is they won't restart their engines until the composite falls back to 2850/2875 level. We'll cross that bridge when we get to it though. Plan B: If for some reason the NASDAQ Composite can hurdle the resistance at 2980, there's a rising resistance line (orange) around 3025 that should do the trick. I see that as a distant-second possibility though. Anyway, in Wednesday's newsletter we opened a can of worms by talking about the market's earnings outlook (and tepid results so far) for Q2 of this year. The basic gist was, "not so good." Today we'd like to round out that look for you by drilling down into how each sector should fare for the Q2 earnings season. As they say, read 'em and weep. The nearby table tells the tale. Now, just because a sector is expected to grow or shrink earnings isn't the only piece of the puzzle you need to know about. Meeting or not meeting expectations is just as important, if not more so. In that light, though the technology sector may look the most impressive in terms of growth, it's also running the biggest risk of a setback. (In fact, a slew of tech warnings from last week took a huge toll on many technology stocks, as outcomes were going to come nowhere near meeting expectations.) Still, growth is growth, especially if you can find it from a relatively cheap sector. The industrial sector, for instance, is growing its bottom line nicely, and those stocks don't cost a fortune. I'd even suggest the industrial sector as one of your focal points for the remainder of 2012, with the financial sector posed to become one of the undervalued hot spots next year. Consumer staples seem oddly overvalued, given the outlooks. Of course, this is a journey - not a destination. We'll have to revisit sector earnings again in the future to make any needed adjustments to our biases. Now, about that trading idea... Left for Dead, It's Back With a Vengeance Alright guys (and gals), as promised, today you're getting the second of two new trading ideas. Unlike Cray Inc, (CRAY) from Wednesday, today's name is (1) a company I know you're familiar with, and (2) a company weaving together a pretty exciting turnaround story. How big of a turnaround? Let's put it like this.... despite the 67% rally since the end of last year, its stock still hasn't made up half the ground it lost in 2011. Translation: There's still plenty of opportunity to tap. So what's this rekindled corporation's name? Sprint Nextel Corporation (S). Laughing? That's fine. After all, Sprint was the same company that took what seemed like a reasonable idea of tapping into Clearwire's 4G network last year, and turned it into a train-wreck (an expensive one at that). And, Sprint's the same carrier that's been bleeding customers to AT&T or Verizon for years now. Just know that Verizon and AT&T sure aren't laughing. Why? Because those problems have been solved. (Why do you think the stock's been rallying so well?) Just to paint the right picture, Sprint Nextel didn't "get it" for a long, long time. Losing customers left and right in between 2007 and 2010 verifies it, and the company's stock reflected it. Since then, many investors have mentally written the company off as a permanent second-rate player in a game dominated by Verizon and AT&T. Thing is, Sprint has actually had its finger on the wireless market's pulse since 2009, and quietly began putting the right pieces into place to be a savvier competitor than most give it credit for. The proof of the pudding is in the numbers. For instance, Sprint's (postpaid) average revenue per user grew by $3.69 in Q4 of last year ... the best in the industry, and even a new industry record. Moreover, Sprint's 55 million customers as of the end of last year is its biggest customer base ever.... which hardly says "can't keep customers". Those trends have stayed firm into 2012. Surprised? A lot of people are. That surprise doesn't change the fact, however, that Sprint Nextel's now getting the job done. It all prompts a bigger question: How did this distant-third-place company get the ball rolling again? Answer: By giving the customer what that customer wanted, and by being able to do so at a price the company can afford. Or in simpler terms, Sprint Nextel executed the right game plan. It wasn't easy to do, mind you. The investment community laughed when Sprint committed to buying more than $15 billion worth of iPhones in 2011 to pass along to customers. Well, guess what... the iPhones drew a huge new crowd. The company reports that 40% of its iPhone sales were to new customers (i.e. the gambit worked). And as was noted above, the company ended last year with more customers than it's ever had. Sprint's pricing plans weren't exactly thrilling to investors for the longest time either. The company's got more than its fair share of prepaid, month-to-month customers, as opposed to postpaid, contract customers; prepaid customers tend to generate less revenue. As it turns out, investors may not like prepaid plans, but consumers love 'em. And if you think prepaid plans were picking up steam before, bear in mind what just happened with Verizon's pricing plans. The company is calling it an "all on one" bundling, but it's really just a massive, wholesale price hike... a price hike that costs way more than the comparable month-to-month plan would cost through Sprint Nextel. Now, you could make the argument that Sprint's going to follow in those same footsteps and raise prices too. And, maybe it will. I don't think that's a foregone conclusion though. Part of the reason Verizon raised prices - and part of the reason AT&T is now doing it too - is to finance the new (and huge) 4G LTE infrastructure buildout it needs to power its smartphone offers. If you look closely though, a lot of those improvements are actually retrofits, and the ones that aren't retrofits illustrate how their networks just weren't ready to do the job. While it appeared for the longest time that Sprint was missing the 4G LTE boat altogether, as it turns out, the company was more interested in doing it right than doing it first. Now that the technology has caught up with Sprint's plan, the 4G rollouts are pretty seamless, and consumers love the simple 'unlimited' plans. That's my long way of telling you Sprint Nextel had a good plan, and executed it well. The fruits will come. OK, since we're talking about the stock as an investment, I suppose we should talk about the upside and how to best get there. Like Cray from yesterday, I see the Sprint idea as a long-term one, but you're going to be rewarded for your time. Though it's not expected to be net-profitable, even by 2013, the revenue line has grown for two years, and the annual loss started to shrink last year. Sprint also swung to an operating profit in 2011, confirming the company's moving in the right direction and could justify a higher stock price in the foreseeable future. And from a price/revenue perspective, S shares are prices at only about 1/7th of the market's normal P/S ratio. So what's our suggestion? Credit Suisse has established a price target of $6.00 per share, which would be 63% gain from its current value. Seems fair, though as is always the case, you have to be willing to take some profits on surges. Oh, and the same nimbleness should be applied to any entries - look for dips as entry points. This isn't a "must get in this second" kind of suggestion. So what do you think? Is Sprint the market's Cinderella story for 2012, or are we out of our minds? You can tell us what you think (and we hope you do) at the SCN research page for Sprint Nextel. Talk to you on Friday.