World market are mixed this morning as we are now on Day #4 of the government shutdown. Europe is lethargically hugging the flat line and Asia is mixed with the Nikkei making a one-month low.
S&P futures are up 3-5 handles after yesterday’s weakness. IBD finally switched their market condition to “Market Under Pressure” 50 handles off the highs – I pretty much went back into cautious mode on the breakout failure around S&P 1709.
We have a new pivot low at 1670 to trade against with the 100-day down around 1661 (this level held the corrective phase the prior two times). Resistance stands at 1692-1696.
Traders are worried about “missing a resolution compromise” but also worried that this can go all the way to the October 17th debt ceiling deadline. I’d still keep it light right here. It seems a like the action is a lot more random than calculated since the Fed’s inaction on 9/18.
There are still things to do, but if you are trading for P&L do a bit less of them. The market continues to turn traders around as we remain in a very headline-driven tape. After the indices showed strength yesterday following the gap down, they opened lower yesterday morning and continued to the downside. Stocks were able to bounce in the afternoon to pare losses, but nxiety will only increase as October 17th draws closer.
The S&P finished yesterday right at the 50% Fibonacci retracement of the most recent bounce. Today it will be key to see if we can build on this small up open. If we can rally today, it will preserve the choppy environment that has traders largely sitting on their hands.
Following up on recent set-ups
Lululemon (LULU) ignited higher yesterday well into its gap. Yesterday’s move increases our conviction that LULU could fill the gap and reclaim its status as a market leader.
JP Morgan (JPM) is quietly holding up very well amid this choppy action. It feels like JPM could be poised to break out of the micro bull flag pattern once the market is able to stage a meaningful bounce.
SanDisk (SNDK) held up well yesterday after Wednesday’s igniting bar. The stock went lower in the morning to test its 8-day MA but bounced back to finish narrowly positive. Rest and consolidation after Wednesday’s potent move is healthy and could pave the way for follow-through to the upside.
Take caution in high-beta tech land
High-beta tech stocks have been the go-to group in the market over the past several months, but yesterday there were a few signs to take caution in notable names.
Amazon (AMZN) can often be a frustrating stocks when it looks poised to break out, and that held true to form yesterday. After making a new all-time high right off the opening bell, AMZN traded lower for most of the day to post a 1.79% loss. Take some caution here now after the breakout failure.
Apple (AAPL) didn’t have a breakout failure at new all-time highs, but had a breakout failure above Wednesday’s high – you could call it a mini Red Dog Reversal. The stock might now need some time to set back up.
LinkedIn (LNKD) also staged a bit of a bearish Red Dog Reversal after it traded up through Wednesday’s high and then back down below. Take some caution now.
Sina (SINA) tried to break out to new 52-week highs early in yesterday’s session but pulled back sharply to test its 8-day MA. It was able to rally off its lows as well to create a doji-type candlestick. Some rest could be needed here, but it’s not game over for SINA.
New set-ups to watch
Solar stocks have performed well over the past few weeks, and SolarCity (SCTY) is looking like it could get in on the act. The stock has inched higher over the last few sessions and is now back above its 8- and 21-day EMAs. A break above Wednesday’s high could add some initial momentum and then the key pivot to watch would be $39.21.
MasterCard (MA) enjoyed a tremendous run during the first few weeks of September, but since topping out on 9/19 has been mired in a descending channel. We like strong stocks that put in slight descending channels after breakouts because they provide potential calculated, low-risk entries. Wait for a break out of the channel before considering this trade idea.
Disclosure: Scott Redler is Short FB