Stocks closed modestly higher in thin volume on Friday despite a tepid jobs report. While the data was disappointing, it still showed job growth, albeit slow. Many are saying that the soft number may make the Federal Reserve a bit more hesitant about curtailing its bond purchases in September, but I’m not sure it was bad enough to change their thinking. After spending the session clawing back morning losses, all the indices ended with slight gains. Both the S&P and Dow set new closing highs.
This morning there was some news from trim-tabs: “investors pour a record $40.3 billion into U.S equity funds in July.” News like that makes me laugh and cry at the same time. Due to fear mongering from pockets of Wall St (in addition to basic human nature), Main St hated the S&P at 1100-1200 and now loves it North of 1700. Unfortunately that’s the way it works.
Markets could have sold off Friday but continued to show an underlying bid. This uptrend remains strong and should be a guide for us until it changes. As long as the S&P holds 1698-1702 there is no reason to “switch gears” on any time frame, in my opinion.
On Sunday night CNBC’s Worldwide blog included some of my quotes. They mentioned two years ago we started to talk about the “Road to S&P 1700” now it feels like we could extend to the 1725-1740 area.
In today’s Morning Call we will check the temperature of some sectors as the calendar gets lighter and most of Wall Street plans some August time away.
The banks (XLF) led the market up on Thursday but took a break on Friday as the XLF hovered in front of the last resistance level of $20.93. The ETF still closed above its 8-day and above Thursday’s lows, showing commitment to the recent gains. A break above $20.98 could bring in more buyers.
The retail ETF (XRT) is showing some leadership as it broke out to a new high on Wednesday and then it continued to see upside follow-through on Thursday and Friday. It’s building a new base at $82.25 upper support level. The longer it stays up here, the higher chances we would continue to get upside momentum.
The industrial ETF (XLI) also made a new high on Thursday with decent gains, then it held up well on Friday to close on highs heading into the weekend. Look for potential continuation above $46.02 as it’s getting momentum after breaking out of the tight upper range.
The homebuilders ETF (XHB) had a strong snap back to erase most of its losses from the sell-off two weeks ago. XHB has reclaimed all key moving averages. A break and close above the resistance area of $31-31.40 could open the door for a move back to highs. We spoke about the importance of this in Wednesday’s Off the Charts newsletter.
The agribusiness ETF (MOO) saw a big drop on Tuesday on the news that Russia’s Uralkali Group, the world’s largest fertilizer producer, is pulling out of a cartel and ramping up its production of potash. The move threatens to crash potash prices 25-50%, which weighed on stocks like MOS, IPI, AGU and POT. However, dip buyers stepped in at $49.70 area to contain the sell-off. MOO is hovering in front of the gap from Tuesday. A move through $50.35 could bring in some buyers as this is where it’ll enter the gap. Next obstacle is the 8-day at $51. It needs to hold $49.70 to stay out of trouble.
There has been lots of great action in High Beta Tech.
LinkedIn (LNKD) rallied 10.60% to $237.96 on Friday after beating its earnings estimate after the close on Thursday. Active traders have the big gap up as the new point of reference to trade against at $228.80. Above $237.96 it could see some more momentum. Some digestion would be healthy for higher prices after a big gap up. I played a call spread that some on my VTF saw us put on during Wednesday’s session.
Apple (AAPL) has been acting well since earnings. It had nice upside follow-through on Friday as it broke above the $457 short-term resistance to go as high as $462.85. The trade is in motion and $465.75 is the next resistance level to watch. A break above this could lead to a move to retest the 200-day at $476.18.
Amazon (AMZN) has been basing above its 21-day MA to digest its potent move after earnings. This is a healthy consolidation. The longer it stays above $301-302.50, the higher probability we could see a move back to the pivot high of $313.62.
Google (GOOG) reclaimed all key moving averages on Thursday and held up well on Friday. Look for potential upside follow-through above $907. The stock has room for a move back to highs at $928. The $913 spot is the next point of reference on its way up.
Netflix (NFLX) continued to show some relative weakness as it met some buyers on Thursday and poked its head out of the tight consolidation range, but failed to get follow-through on Friday. It might need more time, but keep it in your radar as it could see a quick snap back as long as it stays above $242-244. It had a negative article in Barron’s that it will need to absorb.
Tesla (TSLA) continued to reward those who approach it with a tactical strategy as the stock gave another calculated entry at $135 on Friday when it gaped down at the open then quickly saw a snap back to fill the gap which starts at $135. The stock gained another 1.8% to close at its new high of $138. Look for continuation above this level. Months ago I discussed with theStreet the potential for a move to $150.
SolarCity (SCTY) is basing above its 50-day in a tight range. It’s worth it to take a look if it could see a move through $42.80 resistance level.
Sodastream (SODA) saw a big gap up on Wednesday last week after the company reported solid Q2 earnings. It digested these gains well as it held above the gap at $63.80. The longer it holds above $64ish, the higher probability we could see some upside follow-through above $67.81.
American International Group (AIG) gapped up and cleared the intermediate resistance of $47.68 after the company posted strong earnings and said it would return capital to shareholders. The stock rose 2.68% to $49.50 on Friday. It did fill a portion of the opening gap to the down side but held above prior high of $47.68. Active traders could use Friday’s low of $47.78 as new pivot to trade against.
Citigroup (C) is flagging nicely above its 8-day after seeing a nice move up on Wednesday. The chart looks good. A move through $53.56 resistance level could open the door for new highs.
I thought July provided traders with a lot of “tradable action” for cash flow. Also, there were multiple situations to hold for multiple weeks. There was lots of nice earnings movement in key areas.
I’m going into August open-minded and flexible. I will try to stick with the trends until they break.
Disclosure: Scott J. Redler is long AAPL, AMZN, BAC, C, GE, LVS, SIMG, NDLS, LNKD call spread. Short SPY.