We saw a monster session out of Asia overnight, helping to lead US futures higher. The Shanghai Index held in very well during our August corrective process and is now helping to lead. The Nikkei that hit its peak in May seems like the consolidation/phase or “pennant formation” is now complete and has resolved to the upside. It finished up 2.5% overnight and is up 5%+ for September already.
We enter this week with lingering question marks about Syria and tapering. On Friday, we had a volatile session after initially shrugging off the weak jobs number pre-market. However, just after the open Russian PM Vladimir Putin said his country would likely come to the defense of Syria if it were attacked, and the Dow plummeted 125 points in the first 30 minutes before reclaiming all of those losses before noon. The market then pushed to the highs but closed in the middle of the range near the flat-line.That type of action has me coming in flat footed today and I’m okay with it.
Traders that navigate intermediate time-frames are trying to figure out if that was the August/September lows around 1627ish and if we can “safely” go back to portfolio approach for a potential move back to 2013 highs. It’s still hard to tell but those navigating the strongest names haven’t had to “worry” about the corrective phase that might or might not be over.
The 50-day stands at 1664ish and the August 15th gap around 1674. If the Bears want this “right shoulder” to build, they shouldn’t let the bulls penetrate too much into this area. Those that navigate macro time-frames have no reason to alter their course.
In today’s Morning Call we will check the temperature of some key sectors.
Biotechs (IBB), despite 0.18% losses on Friday, remain the strongest sector during this corrective tape. The IBB is hovering at highs and trading above all key moving averages. A break above $202.91 marks new highs. Some key names that we list in this sector are BIIB, AMGN ACAD, AEGR, and VRTX.
Energy (XLE) has seen a slow grind up in the last two weeks to get back to highs at $83.50ish. The XLE has regained the support of all key moving averages. Some energy names have been showing lots of relative strength over the last week, such as Schlumberger (SLB), which was mentioned in our Off The Charts newsletter and Morning Call show. BHI, OIH, APA,and EOG are other stocks in the group that have great set-ups and could see some upside continuation.
The Russell 2000 ETF (IWM) managed to finish in green on Friday with 0.27% gain and closed back above the 8- and 21-day. Basing above $100.50ish could be constructive for the IWM to see higher prices. Active traders could use $100.13 as the key level to trade against.
The Industrial ETF (XLI) was able to repair some losses and closed back above the 8- and 21-day on Friday. It has filled the gap from August 27th. The XLI held above the 100-day moving average on the recent pull back showing some relative strength. Holding above Friday’s low of $44.45 would be healthy for higher prices moving forward.
The Transports ETF (IYT) also managed to close above the 100-day despite small losses of 0.24% on Friday. It stills feel heavy and needs to hold above last week’s lows of $111.43 to avoid additional selling pressure.
The Financial Sector ETF (XLF) was able to repair some losses due to a small rally last week. It broke and closed above the 100-day on Friday for the first time since August 27th’s sell off. A break and close above the 21-day at $19.89 could help it regain some power.
The Homebuilders ETF (XHB) continues to lag the market, despite some relative strength on Friday when they led the market up with 1.26% gains. Overall, they still have lots of overhead resistance and a macro Head and Shoulder formation that has been forming since January to be worried above. XHB needs to hold $28.16 to stay out of trouble.
Facebook (FB) poked its head out to have a small break out on Thursday, which was then followed by an impressive extension on Friday to bring the stock back to highs. It went has high as $44.61 before having some profit-taking into the weekend. Overall, this is a great looking chart that has rewarded investors of all time frames.
LinkedIn (LNKD) provided nice opportunity for those looking to buy it on the secondary pricing Thursday. It bounced very hard and cleared most resistance before getting nice Friday despite the early market weakness. LNKD finished the day up almost 2%. Look for upside follow-through above Friday’s high of $253.53 as it could get going for another day or so but it’s a bit extended now.
Netflix (NFLX) was a nice short on Friday when it broke the Thursday’s gap support at $294.42 and went as low as $290.20 before having a quick snap back together with the market to provide great two-way action. However, it couldn’t extend higher above the morning’s high of $296.50 and retraced all the way down to close on lows. It could be some sign of exhaustion after a big break out on Thursday. First support stands at the 8-day at $287.40ish, which could be a buyable spot.
Baidu (BIDU) had a small slide off of highs but held the upper support level of $132.50ish on Friday before seeing a strong snap back to close the day up 2%, showing relative strength. It could see some continuation above Friday’s high of $136.69.
Tesla (TSLA) is showing small signs of fatigue in this upper range. I think you could look for two-way action over the next few weeks.
Apple (AAPL) provided good two-way opportunities on Friday when it sold off quickly to break below its 8-day and went all the way down to $490 before turning around to erase all of its intra-day losses. AAPL closed on highs on Friday signaling potential upside follow-through above $499.38. A move through next resistance of $502.24 could bring in more buyers as the September 10th and 11th events near.
Google (GOOG) ended flat on Friday, but held above the 100-day that it just reclaimed on Thursday, showing some commitment to the bounce. The stock has been trending higher since August 30th’s lows of $845.50. Look for potential upside follow-through above Friday’s high of $883.78.
Amazon (AMZN) saw its upside momentum slow after putting in a doji candle on Thursday, but the stock still closed above the 50-day on Friday after a 0.60% gain. Holding above Friday’s close of $295.86 would be constructive for some upside follow-through.
Goldman Sachs (GS) put in a big bottoming tail on Friday showing some buying power. A break and close above Friday’s high, which is also the 21-day moving average at $157.60, could set it in motion for higher prices in the coming sessions.
Metals are trying to stay somewhat relevant, but have been very random recently around here. Gold (GLD) is still holding its trend off the June 28th lows. It has to stay above $131.80 to stay interesting for any upside. Silver (SLV) needs to hold $21.18.
The President will address the nation Tuesday and headlines could continue to move the market. While you have to be aware of your environment, I will continue to focus on navigating the price action.
Disclosure: Scott Redler is long AAPL, BBRY calls.