Most world markets followed the US markets lower. Europe was down across the board in a controlled fashion and off the lows. The Nikkei got hit hard down 3% or so, as it’s sitting on a high perch after lofty 2013 gains. Shanghai actually came off of five-month lows with a 0.9% gain.
Yesterday seemed to be a perfect storm against the markets. Some were still confused from Friday’s jobs data and then you had a Goldman analyst say the markets are overvalued on every metric giving it a 65% chance for a 10% correction. You combine that with the lethargic, thin, erratic action of the first two weeks of 2014 and I don’t blame some investors who ran for cover.
The market gave most participants a few spots to make adjustments as it sliced through the 8-day EMA at 1832 and then sliced through the 21-day later in the day at 1824 before hitting a low of 1815 (right above the prior breakout from 2013). Now the pivot action support level for adjustments is 1815.
You judge the potency of the sell-off by how strongly the market bounces over the following few sessions. If the bears want to create an “h” type pattern where you can short a bounce there are two resistance zones – an easy bounce can take you back to 1823ish, and then If the bears want to keep some of the pressure on they do not let the bulls reclaim 1832 zone.
The same things goes for most sectors. Let’s see the “type of bounce” the market can muster to judge if we could head lower in coming weeks.
SPY had a bearish engulfing bar to taking us all the way through the prior pivot low of $182.08. The damage was contained at $181.34 which is right below the prior break out level of $181.75. See what type of bounce occurs – first resistance is $182.32 then the 182.90ish. If the bears want potential lower prices, that is the area they shouldn’t let the bulls reclaim. The 50-day moving average is down at $180.26.
The Nasdaq ETF (QQQ) also broke below its 21-day after a sharp sell-off of 1.48%. The upside momentum has been slowing down in some high beta tech stocks as we’ve seen some two-way action. Use yesterday’s low of $85.68 as the new pivot to watch. Below this we have bigger support at $84. There is some resistance at $86.70ish if you are measuring the bounce.
The Russell 2000 ETF (IWM) also fell 1.37% but managed to close back above its 21-day EMA. Use yesterday’s low of $113.26 as the upper level support. Below that the 50-day at $112 is the next spot.
The Retail ETF (RTH) led the market down after outlook warnings from Lululemon (LULU) and Sodastream (SODA) gave two major outlook warnings. The ETF broke below its uptrend support that has been in place since November to resolve the upper level range to the downside. Next major support stands at the $58.50 area.
Most momentum stocks have very ugly candles from yesterday. Some stocks tried to break out early and failed, and then some broke upper level areas triggering some stops.. These will need some time to mend so take some care in whatever you’re trading.
Apple (AAPL) gave us a nice Red Dog Reversal trade right off the open, but failed to hold its intra-day gain as the stock finished with small gains of 0.52% largely due to the last push into the close. It needs to break and close above the 21-day EMA at $541 to get some attention again. Use $529.88 as pivot support.
Amazon (AMZN) had a three-day pull back to break below its 21-day EMA for the first time since October. Use yesterday’s low of $388.45 as the new point of reference to trade against as it could try to get a quick oversold bounce. Below that we have $379.50-381.50 as the bigger support area.
Twitter (TWTR) had nice overnight gains to try to retest its 21-day EMA, but failed to hold its gap support at $58.50. The stock closed on lows to show little buying interest. It needs to break and close back above the 21-day EMA at $60.40 to get some momentum. Recent support to trade against is $55.59.
Facebook (FB) also broke below its 8-day EMA at $56.70 to resolve the upper level flag to the downside. Next support stands at the 21-day EMA at $55.16. See how it handles this key moving average that has been providing good support since mid-December.
Google (GOOG) tried to be strong early on and still remains one of the better looking high beta tech names. Yesterday’s low to trade against is $1117.
3-D printing stocks, which are very high valuation momentum names, all reversed hard yesterday. Break out failures are not good signs for these type of names.
3-D Systems (DDD) broke below the 8-day EMA, giving some a reason to sell it. Some care should be taken here.
Stratasys (SSYS) also tried to hold up then broke its momentum moving average.
Voxeljet (VJET), Exone (XONE), Organovo (ONVO) are second tier names that also failed, flashing sell signals. When you trade momentum names you need to know your momentum rules.
Some short ideas in the weakening retails group.
Starbucks (SBUX) has been forming a Head and Shoulders pattern that could point to lower prices if the stock breaks below the neckline support at $74.45. The measured move could take it down to $67-68 area.
Dunkin Brands (DNKN) is also building a bit of a rounding top that could resolve to the downside if the stock fails to hold yesterday’s low of $45.96. A break below this could lead to a retest of the 200-day EMA at $43.90ish which lines up with the prior pivot low.
Wal-Mart (WMT) has a series of lower highs as the stock has been developing a descending triangle pattern. A break below yesterday’s low of $77.20 could lead to lower prices.
Aeropostale (ARO) briefly broke out of its monthly range to the downside at $7.78 yesterday. The stock has a bearish chart and could see some continuation to the downside below yesterday’s low of $7.62. After yesterday’s sharp losses it might be prudent to wait for some sideways action before entering short, but the stock is breaking major macro support levels.
Banks are in focus as we will be getting those earnings out this week.
JP Morgan (JPM) is out this morning and looks “okay” although it’s off the highs, it still has come a long way. It’s bouncing around so far this morning. Use $57.53 as the action pivot. Below that level maybe it’s a short, and above it it’s a buy. Personally I would just let the dust settle a bit.
Bank of America (BAC) broke below its upper support. Numbers are on Wednesday. Yesterday’s low is $16.40 with bigger support down at $16.05ish.
Wells Fargo (WFC) is not out yet but $45.45 is your pivot.
Citigroup (C) also came under pressure yesterday. I think $53ish is an interesting spot to buy some back if you sold it above $55ish. Earnings are on Thursday morning.
Gold (GLD) is down a bit as the futures are up a bit. In order for this trade to stay interesting for the bugs it needs to hold $119.58ish.
Days like yesterday do happen. Sometimes they lead to bigger moves lower. If your process has you go to tactical if we break and close below the 8/21 EMAs day like mine you will always have time to get back in (or be out of the way to judge the action for the next move). Again, you can always judge the day to take notice by the type of bounce in the next few sessions.
Disclosure: Scott Redler is short SPY