World markets are mostly red this morning, and S&P futures are down 12-14 handles for a few reasons:
#1- It looks like we will get a government shutdown (one last vote tonight).
#2- Italy’s government is having some problems (perhaps crisis mode).
#3- Weaker than expected Chinese PMI (a change from some of the recent stronger reports).
Today’s lower open is giving some more downside follow-through after breakout failure we did see at S&P 1709. Lots of traders got thrown off when the Fed didn’t taper on 9/18, and the “euphoria” was very short-lived. If you dialed down some risk based on the technical action recently, the next few sessions could present some opportunity. No one truly knows the “type” of correction we may get, but you don’t have to if you’re not stuck in the process.
We are indicating an open below the 50-day moving average, which stands at S&P 1680ish. The 1672-1674 zone is a pretty big support area, while the 100-day that held during the past two corrective phases stands at 1660 (very important). In order to relieve some short term pressure today, a close back above 1680ish would make some sense.
Recently lots of leadership names did hold in well during the first phase of this corrective process. We need to see if that continues as the quarter comes to an end. Do they help pull the market out of this funk, or play downside catch-up? Make sure to measure each individual trend.
In today’s Morning Call we will go over levels and opportunities in some key sectors.
The Biotechs (IBB) are still one of the strongest sectors. IBB is back above its 8-day moving average and closed near prior pivot high of $212.50. The ETF outperformed the market on Thursday and Friday thanks to relative strength in some closely-watched biotech stocks CELG, GILD, BIIB, ALXN, REGN as they all have nice set-ups in place.
The Banks (XLF) had a short-lived two-day rally before the sell-off on Friday. XLF is hanging by a thread at the 100-day at $20. See how it handles this key moving average. A break and close below this could bring out more sellers. JPM was the winner in this group has it gave us a nice two-day trade with a calculated Red Dog Reversal entry at $50.30 on Wednesday, something to do during this corrective tape. See if this group can hold $19.94.
The Homebuilders (XHB) had a quiet week as it was digesting the sharp sell-off from September 19. XHB is hovering around its 8-day trying to find support at $30.50ish. It has a bear flag formation building, which could resolve to the down side with a break below $30.11. A close below that level would not be good for this group.
The Russell 2000 (IWM) has a solid upper-level base above the 8-day at $105.70. The longer it holds above this upper support area, the higher the probability we could see higher prices. Overall, IWM has been holding up well. Use $105.80 as your high-level pivot.
The Consumer Staples (XLP) has been getting hit the hardest as there is a downtrend that has been in control since September 19th. The XLP is already below most key moving averages besides the 200-day. A break below Friday’s low of $40 could open the door for a retest of the 200-day at $39.43.
We will also look to see how high beta tech stocks react to today’s weakness.
Apple (AAPL) has short-term resistance at $496ish. It is in the gap premarket, and needs to get back above $480.72 in the next session or so to stay interesting.
Google (GOOG) has been stuck in a downtrend since the sharp sell-off on Monday ($895ish was the high level stop). The stock already lost the support of some key moving averages. Use Friday’s low of $871.31 as the new pivot to watch, while the next key support lies at $863 from June. Below that we have $845.56 from August’s lows. I will look here today to see if it can go positive.
Amazon (AMZN) continued to find support at the 8-day as the stock has been building a tight upper level base. Any pull-back into the 8-day has been buyable. Use Friday’s low of $313.35 as the new pivot to trade against. Big support to hold momentum lies at $308.77.
Netflix (NFLX) had a nice three-day rally before taking a healthy break on Friday. The stock is still above all key moving averages, showing relative strength. A break and close above $314.50 could set it back in motion. It needs to continue to hold $298ish.
Tesla (TSLA) continued to get upside momentum after the igniting breakout at $173.70 on September 19th. The stock tacked on another 1.20%. Look here to see if there is relative strength today. Some support is around $186.43. The 8-day is all the way down at $182.61.
Facebook (FB) has been a great one for us since earnings. It did close strong again on Friday, showing continued relative strength. Pivot resistance is $51.28, but it is now extended from the 8-day that stands at $48.50.
LinkedIn (LNKD) got hit a bit on Friday. The 21-day is down at $245ish, and a break and close below that could set this in motion back to $233.
The metals could perk up a bit and are worth a look, but hard to get too excited about yet.
Gold (GLD) has been perking up a bit since last week. The $126.30 level was proven to be a strong support as dip buyers stepped in on Tuesday to lift the ETF up to $129.58 area. The ETF has some resistance from the key moving averages at $130ish. A break and close above could regain some buying power for a move to the next short-term resistance at $132.78.
Silver (SLV) has been lagging a bit as it couldn’t find much momentum above $21.15. The 8-day moving average continued to put some selling pressure on the ETF. It needs to break and close above $21.15 to look more interesting.
The Gold Miner ETF (GDX) has a bear flag formation in place as it couldn’t break above the resistance from the 8-day at $26. It’s hanging by a thread at $24.57. See how it handles this key short-term support, as a break below could lead to some downside action.
THe 2x Inverse Bond ETF (TBT) did break its uptrend after Fed Day at $80.50ish. If you have no exposure here, perhaps $73.87 is some support, but the more compelling level is probably closer to $71.55.
I dialed down some risk early last week and am in tactical mode. I’d love to start putting some positions back on but don’t want to start too early. At the close today, we will have another set of choices to make about the type of risk we could have into the actual “event.” There is lots of time before now and then. This is a time to measure your time frame. If you are a macro investor and survived 1987, 1997, 2001, 2007-2008 you too shall survive this. If you trade to create “alpha” or for P&L, this is a tricky time. But it should make for a much interesting 4th quarter.
Disclosure: Scott Redler has no positions