World markets were very strong over the US holiday weekend and that strength has carried over into S&P futures this morning, which are currently up 12-16 handles. Most traders were reticent to put on new risk ahead of potential military intervention in Syria, but instead President Obama decided to seek authorization from Congress on potential air strikes. Military action is now at least somewhat in doubt, if not at the very least delayed.
If you found yourself glued to your TV or handheld news source during some cherished time off,
next time make some better adjustments so you don’t get caught in the “hoopla.” There was a case to be short into the weekend, a case to be long some of the strongest stocks as they continue to hold their 8- and 21-day moving averages into the weekend, and a very strong case to do nothing – which seemed the most prudent to me.
In addition to the Syria inaction, world PMI’s came in better-than-expected. Asia had a big two-day session as the Nikkei stood out with a 3% gain. European markets are also holding yesterday’s gains pretty well. US futures are up sharply even despite news this morning of a missle test in the Mediterranean being credited to Israel. Today should be a very interesting day. Will today be a “gap and go” to squeeze shorts and not let others in, or will people use this up open to sell as some technicals weakened through August?
Right now it looks like we will open above last week’s high in the SPY’s of $165.04. If we hold this for 30-60 minutes, there is a gap to fill up towards $165.89. Macro bears are saying this rally could help build a right shoulder in a bigger head and shoulders pattern. If the they want that thesis to hold true, they need to defend $167.00-167.43
In today’s Morning Call we will check the temperature in some key sectors.
The Dow ETF (DIA) got hit the hardest in August, dropping more than 4%. If this bounce were to set-up a “right shoulder” the bears shouldn’t let this index reclaim $151-152 in the next week or so.
The Russell 2000 ETF (IWM) suffered a big loss on Friday as it broke below prior pivot low to put in a new low of $100.24. Next important support stands at the 100-day at $98.90. To regain some power, it needs to break and close above the 50-day at $102ish. It is opening near this spot that should be a bit of rubber match.
The Financial Sector ETF (XLF) continued to drag the market down, as it stayed below the 100-day for four consecutive sessions. Use last week’s pivot low of $19.35 as the new point of reference to trade against as a break below this could bring out some sellers. XLF needs to break above $19.70 to get some momentum. It is oversold enough for a bounce, and if that happens bears would want to make a stand around $20.10
The Retail ETF (RTH) managed to find some support along its 100-day at around $52.85. The longer it stays above this key moving average, the higher the probability we could get some bounce type rally. The $54ish level is key resistance here.
The Biotech ETF (IBB) showed relative strength as it held above all key moving averages including the 8- and 21-day MA. A break above $197 could set it back in motion.
Tech (QQQ) continues to hold in best and the ETF is above the 50-day. If this group continues to hold above that, bears shouldn’t have too much success.
There is a group of stocks holding in best for those looking for movers.
Netflix (NFLX) broke out to new highs on Thursday and had a healthy pull back on Friday as it still held above the 8-day. Use Friday’s highs of $288.83 as the new point of reference to trade against as a break above this could lead to some continuation.
LinkedIn (LNKD) continued to find support along its 8-day, showing healthy action. A move through Friday’s high of $242.47 with volume could bring in some buyers.
Tesla (TSLA) had nice gains of 1.77% on Friday showing impressive relative strength. Look for upside follow-through above Friday’s high of $169.21 as the stock closed on highs signaling potential continuation to the upside. Obviously keep this best in breed stock on your radar.
Facebook (FB) is another in-play stock that showed impressive strength. FB put in new high at $42.26 on Friday. It doesn’t have any resistance until the all-time high at $45.
Apple (AAPL) is resting above its 21-day to digest recent gains. The longer it stays above this key short term moving average at $483.83, the higher the probability it could get some attention again.
3-D Systems (DDD) continues to try to break out as this strong pattern has built for the past six months. The $54ish level is pivot resistance.
Casino names continue to hold above their 21-day moving averages.
During a corrective phase, look for stocks that hold above their 8- and 21-day moving averages when the indices probe levels like the 100-day.
We also have two M&A deals this morning with Microsoft (MSFT) bailing out acquiring Nokia (NOK) for around $7 billion, reinforcing MSFT’s no-strategy strategy. Also, in the third largest corporate deal ever, Verizon (VZ) is buying out Vodafone (VOD) stake for $130 billion to end an uncomfortable 14-year relationship.
Metals had a bit of a pullback. Gold (GLD) has some bigger support near $132ish. A break and close below this level will raise questions about this recent move. Silver (SLV) had a big move from $18ish to $24ish and has intermediate support at $21.83ish now.
We do have a lot to look at in the next two weeks. Friday’s jobs number and the G20 summit on September 5-6. The anticipated September Fed rate decision isn’t until the 18th.
I’ve been in short-term “tactical mode” for most of August, and will likely stay that way as I do think we will get a lot of market moving headlines this week. You can judge the market’s reaction to figure out which ones are the most important.
Stick to your process and don’t let the fear mongers take you away from it.
Disclosure: Scott Redler has no positions