Futures are pointing to a weak open as numbers out of China continue to point to a hard landing and Spanish yields close in on historic highs. The 10-year yield climbed above 7%, whcih pretty much priced them out of the private market. Why would the private market want to get involved after getting battered and bruised as Greece was able to get favorable “re-works” for their situation? And now it seems like Italy isn’t too far behind Spain.
Last week the Oscillators hit +70-80 on Tuesday and Wednesday, giving market participants enough time to sell some strength as we hit some bigger resistance. On Friday, after the jobs data, it made sense to also clean up some longs you were not committed too. There are times in the market, like now, to keep size down and lots of cash on hand, and times to take trades and only maneuver when there’s a compelling set up. This earnings season is already punishing companies with exposure to Europe and our own public sector. The cloud space/software sector has acted poorly the last few months, and then they all got hit again after INFA had a large miss, and VMW, FFIV, and CTXS were all collateral damage. Make sure you know what you’re holding and your commitment level as this will be a VERY spotty earnings season.
Last year we saw the same trading set up, as we had a mechanical/rally/squeeze through July 4th into a Friday jobs number that led to the market’s “summer top.” We need to monitor the action closely as this feels very similar. We now have one distribution day, and IBD did not change its market outlook to “market under pressure,” which surprised me a bit, but it did feel like it could have been worse Friday as some leaders had contained down moves.
First level to watch today is Friday’s low of $134.85. This was also the start of the gap from the “gap on go” from the “EU Summit” news, and the 38.2% retracement from the $130.85 low to recent pivot high of $137.51 (holding this level would be impressive). If the market trades into the 6/29 gap the 50% retracement level stands at $134.20, and holding this area would be constructive for higher prices as it keeps some of the gap in place and shows some strength. The last line of defense, which held the recent rally, is the 61.8% Fib at $133.40. This thread has held many times since the October 4th low of last year.
I will send out my price point sheet, which has individual stocks and levels that could be set for action, a little later. On this sheet are the stocks I typically focus on each day. Sometimes they are ready for action, sometimes they are rebuilding!
Disclosure: Scott Redler is Long FB and short SPY.
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