World markets are mixed overnight as Europe is off a bit and Asia has a more positive tone. The Nikkei reversed up after making one-month lows to close positive. The Shanghai Composite was up 1.1% after China’s Golden week holiday celebrations.
It feels a bit more like the Summer months than the first week of October, and I’m not just talking about the weather. The action remains choppy as the market tries to figure out where this headline driven corrective phase could take us. We are on Day 8 of this government shutdown and T-9 until we hit the debt ceiling. The S&P is trying to hold onto its 50-day, but the more you knock on that door, the more it starts to bend and splinter.
In my opinion, it feels like we at least have a date with the 100-day MA and trendline at 1660ish. My gut tells me even if we breach and close below this level, the most downside we likely get is a re-test of 1627, with perhaps an overshoot down to 1580-1600. I don’t think we will get the 15-20% correction that the Bears are growling about.
The beauty of taking down risk earlier, like I did on the break-out failure around 1709ish, is that you can test levels and let the market tell you what will hold. Another benefit of a corrective phases is that you can “buy the dip” on stocks you like rather than chase them at highs. Pull-backs also pull the curtains back and reveals where the relative strength is hiding.
There are not that many exciting patterns out there right now besides looking for reversal patterns if they show their face. Pressing support from the short side has been frustrating as well. In today’s Morning Call we will look at some high-beta tech opportunities and observations.
Amazon (AMZN) had a small push-through failure at $321.73 Thursday of last week, which led to some downside action as the stock broke out of the bull flag pattern to the downside yesterday. It dropped almost 3% to retest the 21-day at $310. See how it handles this key short-term moving average. Use yesterday’s low of $309.74 as the new point of reference.
Google (GOOG) also flashed some signals to take caution last Thursday, as the stock put in a big engulfing bar and broke some short-term support levels. Sellers continued to press the stock down another 0.76% yesterday. Use yesterday’s low of $864 as the new level of interest as it could see an oversold bounce after a three-day sell-off.
LinkedIn (LNKD) broke upper-level support of $242.50 to go as low as $237.10 yesterday. The stock closed on lows, showing potential downside follow-through. Next important support stands at $233.16 from the 9/23 pivot low.
Facebook (FB) still has best-in-breed status but is tricky up here in my opinion. Potentially see the 8-day as your high-level stop or pivot that now stands at $49.93.
Apple (AAPL) got a lift from Jeffries’ upgrade yesterday morning to give us a nice trade right off the open. However the stock ran into resistance at $492.65 from last week’s pivot high and retraced back to lows to finish the day up only 0.98%. A close below $482ish would be frustrating. The stock needs to clear that higher pivot to get more interesting.
Tesla (TSLA) had a nice snap-back from Friday into Monday. Now you need to see if it can digest above $177-$180 in order to keep this 7-8 month strong trend intact. I think it could use a few inside days now.
Solar stocks remain very strong
SolarCity (SCTY) enjoyed an explosive two-day rally after we listed it as a long set-up on our Off the Charts newsletter. SCTY triggered our action area long price of $36.20, now the next pivot to watch is $39.21, the high from 9/20. A break and close above this could bring in more buyers. It needs volume.
Jinko Solar (JKS) is another solar name that has been acting well. It has reached the target area from our newsletter two weeks ago, but the stock continues to hold up well and looks poised to potentially make another leg higher above $24.30.
JA Solar (JASO) is another breakout candidate in the solar group. The stock has been holding higher since the most recent breakout. It also held above the 8- and 21-day over the past few sessions, showing relative strength. A break above $11-11.40 could lead to another round of short squeeze in this stock. Current short interest is 15.72%.
Banks and homebuilders still feel heavy and it will be hard for the market to get any traction until that changes
The Financial Sector ETF (XLF) has a pivot at $19.73 for two-way action.
The Homebuilders ETF (XHB) has a pivot at $29.81 for two-way action
The Russell 2000 has been the strongest index, but has been strong starting to bend a bit. The Index’s ETF IWM has an important two-way pivot at $105.24.
The Biotech ETF (IBB) is a bright spot in the market with some momentum still left there. You could look to trade individual biotech names, but use yesterday’s low of $107.69 as your two-way pivot on IBB.
Metals are trying to become relevant but still lack power. GLD needs a big “igniting bar” and close above $129.58 to get back on traders’ radars.
There is no telling how long this circus in Washington will last, so this lethargic/choppy/random action could continue. I still believe you should keep gross and net exposure low until there is more clarity.
Disclosure: Scott Redler long AAPL, short SPY