U.S stock index futures are up after upbeat PMI’s from China and Germany. Yesterday the Fed minutes did nothing but cause more confusion. The FOMC said its decision making would remain data-dependent, but that conditions were moving closer to potential QE tapering later this year. The market couldn’t make up its mind about whether the minutes were hawkish or dovish, as the S&P dropped initially, then rallied into positive territory and then sold off into the close to finish on the lows of the day.
All in all, it was typical of Fed days, when there can be false starts that are likely the result of algorithms in overdrive. I wouldn’t put a lot of stock into yesterday’s Fed minutes, although bond yields did continue to push higher, which is something to note. I will say, so far this is the same action that took place on July 31, when markets closed on the lows and then gapped up the next day for a “gap and go,” so today should be interesting.
The S&P inside range to be navigated has yesterday’s low at 1639 (and the 100-day at 1633) with resistance at 1656-1659. The recent action has been somewhat random, thin, and not the easiest to navigate, so I would do a bit less as it’s August 22.
Here is a quick look at the different sectors, which we will go over in the Morning Call.
XLF had a nice bounce on Tuesday, but still had some pressure from the 50-day moving average. It’s key to watch the recent support of $19.72, as a break below this could lead to a move down to retest the 100-day at $19.56 area.
RTH also feels heavy after the big gap down on last Thursday that sent the ETF to break below the uptrend line that had been in place since December 2012. The longer it stays below the 50-day at $53.96, the higher the probability we could see lower prices in the coming sessions.
IWM bounced back above the 50-day on Tuesday and was able to close above this key moving average yesterday. The chart looks bent but not broken, as it still held above the prior pivot high of $100.38 from May.
XHB homebuilders ETF had a strong bounce on Thursday last week to reclaim its 200-day moving average, but it couldn’t get much upside momentum as it still has lots of overhead resistance. The intermediate Head and Shoulders topping pattern that has been developing since January is still intact. The neckline support comes in at around $28.16, a break and close below this could bring in some aggressive sellers.
IBB biotech ETF had a nice two-day bounce to reclaim both the 8- and 21-day MAs. It did close off of highs yesterday as the broader market experienced a sharp sell-off into the close, but the longer it holds above $187.13, the higher the probability we could see some upside momentum. Overall, this is one of the strongest groups that helped lead the market up this year.
We will also look at some of the Chinese names that have been showing some relative strength.
BIDU continues to hold the upper floor support of $132.60ish, and showed some relative strength yesterday as it closed well off of lows and posted 0.76% of gains. As long as it holds above yesterday’s low of $134, we could see a move through $136.54 to reclaim the 8-day, which could help the stock get back in motion
SINA has enjoyed a nice rally since igniting on July 18th. The stock is still well above the 21-day, showing relative strength. The longer it holds above last week’s pivot low of $77.80, the higher the probability we could see higher prices moving forward,
YOKU had a nice rally right off the open yesterday, and held in well during the afternoon’s volatility in the market to register 5.26% of gains, showing impressive relative strength. Holding above yesterday’s intra-day support level of $22.55 could keep momentum intact for higher prices.
SOHU is lagging its peers a bit, but trying to hold its 100-day at $59.85. See how it handles this moving average as it could meet some buyers at this key support area.
Some notable names to watch
AAPL held above Tuesday’s low of $500.82 despite the sell-off in broader market yesterday. However, the stock closed on lows showing some short-term weakness. Overall healthy digestion is underway to allow the short-term moving average to play catch up. The 8-day comes in at $495.85, which could be a better buyable spot. The $488 level is the major line in the sand. If this upper flag stays intact you could potentially buy above $507ish.
UA continued to show impressive relative strength after finding good support at the 21-day at $68.94. The stock had three consecutive up days and closed above its 8-day. It looks poised to put in a new high in the coming sessions.
RAX could be a candidate for a good short set-up. It has a bear flag formation in place, and continued to get selling pressure from the 21-day. A break below $43.40 could trigger some selling
TGT missed its earnings expectation and dropped below its 200-day yesterday. It had a very ugly day yesterday. Use $65.14 as a pivot to trade against. It could set-up for a buy after the pressure subsides here.
GOOG was boosted by some news that it might get the NFL football package, but it couldn’t really hold up. It has been very sloppy lately and needs to hold $866 to stay a bit interesting.
AMZN is trying to hold $283-285 after its false break out bearish signal. If that doesn’t hold it could continue to be pressured.
FB still acts well and could be a stock that makes new 2013 highs at some point when the market finds its footing.
TBT have enjoyed a big recent run but a bit extended at this point. If you are long for a trade, I would look to trim a little here. Yesterday’s high is $82.80.
GLD still hangs tough after a nice tradable move since the “blood on the street lows” on June 28. It had a nice RedDog reversal at $115.65 then another nice pattern above $130. Now it’s flagging. As long as it stays above $130.50ish I think tactical traders will stay interested.
At this point this market is in a bit of “no man’s land” below the 50-day but above the 100-day. I don’t think you need to do much here as I’m not sure the August/September lows are in, but also don’t think the 2013 highs are in. As long as the market holds 1620-1630 in the next few weeks, I do think we could make new 2013 highs
Disclosure: Scott J. Redler is long FB, BIDU, BAC.