Markets Down With No Government Deal in Sight

S&P futures are down 14-16 handles pre-market as no deal is in sight to end the government shutdown. The talk is predictably shifting toward a “grand deal” that includes the debt ceiling, for which the deadline is October 17. Most world markets are red as well, with Europe and Japan at one-month lows. The S&P is about 3% off the highs of 1729.

While the macro action has been very random and violent, many individual stocks have held up well. If you trade from an active-intermediate time frame it’s been a brutal few weeks as when the markets close well, they gap down, and when they’ve looked ready to break down, they rally. In this type of environment I think it’s better to shoot for low gross exposure and low net exposure – there is no need to be a hero.

Many are now trying to make guesses about whether we default, and how close to the deadline we will go. Will there be last second “deal”? At this point nobody truly knows. What you know is your time frame and risk tolerance.

From a short-term perspective we have last week’s low to trade against at S&P 1670. We also know at 1661ish lies the 100-day MA, which we’ve been above it for 98% of 2013. Measuring this area for the speed and composure of this tape makes a lot of sense, especially if you try to generate income from your trading P&L.

On a day like today you see if anything goes green that could help pull us off the lows. In the Morning Call we will go over important support in key sectors and some of the better acting names.

The Nasdaq ETF (QQQ) continues to show relative strength. See if it can stay above the 21-day of $78.53 or last week’s pivot of $78ish. A close below this level could heap some pressure on an already shaky market.

The Bio-techs continue to lead the market, with several names continuing to act well – CELG, BIIB, ALXN, GILD, REGN – despite the recent weakness in the markets. The Biotech ETF (IBB) has been holding above its 21-day moving average since late August, showing relative strength. The 50-day MA is $211.28.

The small-cap Russell 2000 Index ETF (IWM) found support at the prior breakout level of $103 on Monday and continued to hold higher since. The IWM closed back above its 21-day putting in a solid upper level base at $105 area. Holding above this level could be constructive for higher prices. See if this continues to hold up and use high level stops.

The Oil Servicers ETF (OIH) has been gaining some relative strength. It’s actually above its 8-day now and needs to stay above $46.55 for active traders to stay interested.

The Financial Sector ETF (XLF) has been trying to pare some of its recent losses. The XLF put in a big bottoming tail on Thursday after finding support at $19.73 and closed back above its 100-day on Friday. It’s trying to act a bit better. Use $19.73 as important pivot.

The Homebuilders ETF (XHB) still feels heavy, but the 100-day has been acting as strong support. However, the XHB has been stuck in a short-term downtrend again over the course of the last two weeks. It needs to hold Friday’s lows of $30 to stay out of trouble, in my opinion.

The Consumer Staples ETF (XLP) got hit hard and already gave back all of its gains from the recent August/September rally. It’s hanging by a thread above the 200-day at $39.50. Could it find support at this key moving average again? Watch how it handles this key moving average for clues of composure.

In the last two weeks we’ve highlighted many strong Chinese internet stocks that have had big runs and could continue: BIDU, SOHU, YOKU, SINA, and NTES. Keep them on your radar.

High beta tech continues to be choppy but hold in okay

Apple (AAPL) is still building a nice price pattern but a bit whippy. Jeffries upgraded the stock this morning so let’s see if today’s morning gap up holds and if it can build. The area that hurt many of us last week is $492ish. A close back above this could help get this more momentum.

Facebook (FB) closed below its 8-day MA on Thursday and reclaimed it Friday. The stock is still very strong, and the longer it stays above $49ish the higher the probability for another move through $51-51.60.

Tesla (TSLA) provided nice two-way action last week. It closed below the 21-day MA for only the second time this year but reclaimed it on Friday. If it goes positive today and holds $177ish I think some bulls could continue to stay in control. Watch price action here.

Amazon (AMZN) didn’t have enough power last week to break and close above $322ish. Now it needs to hold $309-312 to stay on traders’ A-list.

Google (GOOG) has been very frustrating for active participants, but still looks okay if it holds $868ish.

LinkedIn (LNKD) is building a nice upper base and needs to stay above $238ish to stay in the game for some momentum to come back.

Yahoo! (YHOO) is super strong thanks mostly to its stake in Chinese e-commerce giant Alibaba. Look to see if it can go positive today and continue.

eBay (EBAY) has been very sloppy on a short-term basis but the overall channel still looks good. As long as it holds $54ish some traders will keep it on the radar.

Solar names have been very strong

First Solar (FSLR) would remain constructive if it holds above $42, and would get even better if it goes positive and takes out $44.58.

Solar City (SCTY) finally woke up and closed strong on Friday. See if this goes positive today. Holding $36.50 this morning would make it easier for overnight guys to stay with the trade.

Metals are hanging on and are up a bit this morning, but you would think they would be up more with the market under pressure. In order for Gold (GLD) to get more interesting it would need to blast above $128ish. Macro gold guys want a move over $133ish for a real composure change this year.

This is not an easy environment to say the least. I’d keep it simple and do a bit less until we get some more clarity.

Disclosure: Scott Redler has no positions

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