Can Market Regroup After Friday’s Decline?

Today we begin the final week of what has been a very interesting September in the market. September is traditionally a somewhat negative month for the market, but the “no taper” decision helped the market break out to new highs on Wednesday. Futures were quiet over the weekend, so after giving back Wednesday’s gains on Friday the market is left to figure out what the implications of the latest Fed action are.

The market started to show weakness this Summer when taper talk started, with many forecasting September as the most likely month for the FOMC to trim its QE pace of purchase. August turned out to be the weak month, and in fact the market rallied in September to trade near highs leading up to the announcement.

The S&P held 1627 and then the first three weeks of September had a very strong upside move, capped off by a very erratic Fed week. The Fed was widely expected to cut QE purchases by ~$10 billion per month, but their inaction caused one last spike, which probably caused some guys rolling up painful shorts to throw in the towel above SPX 1709 and some who were underexposed to chase. The S&P reached 1729 before getting hit on Thursday and Friday.

The question is, now what? As a technician I hate “break out failures,” and at the very least you always take notice of them. We did see one in late July when we broke above S&P 1698 and came back below it quickly, which led to the last corrective phase down to 1627. So, it’s worth taking a close look to see what this leads to this time. Intermediate trends are still strong. We are above the 8- and 21-day MA. This week should be an interesting one. If the Bears want to keep some pressure on, they shouldn’t let the bulls reclaim 1718-1722.

Lots of stocks still act well taking turns breaking out, as the rotation continues to be the major theme of 2013.

I will check the temperature of some of the sectors in today’s Morning Call.

The Biotechs (IBB) have been in a steady up trend since August. The IBB is hovering at highs and held above all key moving averages despite 0.68% loss on Friday. Holding above the prior break out level of $207.50 would be constructive. Some names in this group have been on our radar for some upside momentum: CELG, GILD, AMGN. BIIB acted best in breed but look a bit extended at this point.

Transports (IYT) also led the market up in the last three weeks. The IYT put in a new historic high at $121 before seeing a pull back on Friday. Some work above the 8-day at $118.60 would be healthy for higher prices moving forward.

Financials (XLF) failed to make a new high on the rally last week. The XLF experienced some selling heading into the weekend, as it slipped another 1% on Friday to close right above the 8-day at $20.40. See how it handles this key short-term moving average. Next support stands at $20.27 where the 50-day comes in play. This needs to firm up if the market is going to get back in motion.

Homebuilders (XHB) had a wide range last week. The ETF had a potent move back to near highs on Wednesday on “no taper” announcement, then sold off quickly on Thursday and Friday. Perhaps this group realizes the taper is only a matter of time and higher rates are in store. It has bigger support at the 100-day at $30.23ish, which could be a better buyable spot if it gets there. Friday’s move definitely negates much of the validity of the post-Fed spike.

Consumer Staples (XLP) also had a nice run back to highs in the past few weeks. However, the ETF had a two-day pull back instead of having some upside follow-through on Thursday and Friday. See how it handles the 100-day at $40.80 which is right below Friday’s lows.

We continue to look for the best set ups for opportunities both ways

Google (GOOG) had a potent break out on Wednesday to clear most of its short-term resistance. Then the stock held up well on Friday as it found support at $895 to hold above the 8-day and closed on dead highs. A break above last week’s pivot high of $906 could resolve the bull-flag pattern to the upside. This could be the next $1000 candidate for 2013 to follow PCLN. Needs to stay above $894ish.

Facebook (FB) had decent digestion after its igniting move on Tuesday which brought the stock back to highs. Then buyers stepped in aggressively right before the close on Friday to push the stock up 3.3% to close at all-time high of $47.60. Use this level as the new pivot. The stock has been a great investment and trading vehicle. Recently we put out a big strategy out on it August 20: http://www.thestreet.com/video/12013378/facebook-gets-like-from-analyst.html. Even last week around $43 it was attractive, but now it’s extended a bit and time for trim and trail.

Netflix (NFLX) gave us another nice trade at $308.74 on Friday when it broke above Thursday’s high on good volume. The stock put in a new high at $315.89 before seeing a controlled pull back. Use Friday’s intra-day support of $311 as the new point of reference to trade against, as holding above this level could lead to some upside follow-through. Below this we have bigger support at Friday’s low of $305.62

Tesla (TSLA) was another nice two-day trade that was one of the main focus on our VTF and Price Point Sheet. The stock had a nice gap-and-go on Thursday to break above the prior pivot high of $173.70, then it tacked on another 3% on Friday to close at $183.40. Use Friday’s low of $178.56 as the new level of interest to trade around. A break below this could bring in some sellers. A pull-back into the $172-174 area could represent a buying opportunity.

eBay (EBAY) has been inching higher after regaining the support of all key moving averages. The stock has room for a gap fill at $56.68.

Amazon (AMZN) extended higher to put in a new all-time high of $320.57 before seeing some profit-taking into the weekend. The stock looks a bit stretched from its key short-term moving averages. A break below Friday’s low of $312.40 could lead to some downside action. The $302ish level was the last strategic buy we listed last week on the Price Point Sheet.

Apple (AAPL) gave us a nice trade last week as it hit $448 quickly after failing at $503ish on “event day.” Friday was Day 4 to the upside which is never easy to buy and it did fail at the prior gap area. This stock is back to being a day-trading vehicle as it has a lot to prove once again. Use $466 as a pivot then $460.66.

Quick Hits:

MasterCard (MA) had a nice run since August 30th when it bounced off the 50-day but the stock started to show some signs of exhaustion last week. Use Friday’s low of $682.48 as the new pivot to trade around.

Boeing (BA) also looks extended on the daily chart. It started to see some profit-taking on Friday to finish in red with 2% loss. A break below Friday’s low of $116.63 could bring in some more sellers.

Las Vegas Sands’ (LVS) upside momentum started to slow down as it had a quick move from $57 to $65 in just two weeks. It could use some rest. Active traders could use Friday’s low of $64.83 as the new pivot to trade around.

Blackberry (BBRY) got beat up on Friday after warning on earnings. In Early September I bought some calls just in case they were able to find a buyer. I sold half for a gain, and the other half will go worthless. I always use options for speculative plays if I don’t believe in the company but want to be involved in case. In that case, risk is premium paid.

Metals were very erratic last week. Some called for a “new historic bull market” on Wednesday after the Fed failed to taper. As technicians we measure commitment to igniting bars for validity. Typically it shouldn’t give back more than a third of a move to show commitment..

GLD ignited on Wednesday but failed to hold the majority of those gains on Thursday and Friday so take some care. Use $127.90 as the pivot.

Gold Miners ETF (GDX) gave back way more than it should have on Thursday, giving clues that the metals’ move could be a bit overdone Wednesday, then gave the rest of it back on Friday. The $25ish level is very important support.

Rates rising is still a theme, in my opinion, from here moving forward, but entries and exits matter. If you are very short term use $76.59 as a stop on TBT if you didn’t stop out of some already. The 50-day is trying to hold, and if it doesn’t, TBT’s could see $71ish. I do think that at some point whether it’s 3-9-12 months these will make higher highs, so you could potentially look to buy the dip at some point.

Disclosure: Scott Redler is long GOOG, BAC, FB, BBRY calls.

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