World market are mostly up small and US stock futures point to a slightly higher open Wednesday after news that Janet Yellen will be nominated as the next Chairman of the Federal Reserve. The news gave the market a little boost overnight, but futures are already giving back some of those pre-market gains. The circus in Washington and potential for a US default continues to dominate everyone’s attention, perhaps dulling the impact of the Yellen nomination.
Tech stocks got slammed yesterday in one feel swoop as the Nasdaq dropped 2.0%. Biotech stocks, another area of strength in the market over the past few months, also got slammed as the ETF IBB finished down 4.4%. The market can at times lull investors to sleep and then pull the run quicker than most participants can react. Over the past few days we talked about signs that tech was bending but not yet broken, and yesterday’s drop was a harsh reminder for some about the need to have high-level stops in place on momentum stocks.
Also yesterday we saw a flight to safety as the defensive sectors performed well amid the market turmoil. The Utilities ETF (XLU) was up more than 1% for most of the day, although it closed off its highs. Consumer Staples ETF (XLP) finished near the flat line. Gold (GLD) tried to bounce, but the metal is quickly losing its luster on all time-frames. Yesterday’s negative close was a very bearish sign considering the market turmoil, and today GLD is set for a lower open.
Tech stock led the decline yesterday, and zooming in further the recent IPO social media-type stocks got hit the hardest. Many commentators are running with the possibility that hedge funds are clearing room on their books for Twitter (TWTR) which is expected to IPO within the next months.
LinkedIn (LNKD) flashed a sell signal on Monday when it broke below its 50-day MA, and yesterday sellers stepped in aggressively to push the stock down another 6%. It almost filled the earnings gap from August 2nd. After a harsh two-day sell-off, use yesterday’s low of $217.74 as the new point of reference to trade against.
Yelp! (YELP) also broke below its 8- and 21-day after seeing a 7.6% retracement yesterday. The stock had a big run recently, so it’s not surprising to see a pull-back, but the harsh nature of the correction could be a concern. The next support level in YELP stands at $60-61.50.
Pandora (P) also slipped 7.8% to break below its 8- and 21-day. Investors are growing more concerned about potential competition from Apple iTunes Radio that could eat into Pandora’s market share. Next support to watch would be the gap from September 12th at $23. A break below this could lead to further technical damage on the chart.
Facebook (FB) tested its 21-day for the first time since its earnings gap up and go. While it dropped more than 7% yesterday, I think this is one that still looks OK technically on an intermediate-term basis and has better fundamentals than some of the other stocks in the group. Use yesterday’s low of $47.08 as the new level of interest to trade against. If the stock couldn’t find buyers at this lower levels, it could see some more corrective activity after a big run in the coming sessions.
After a day of carnage in the market, look now for potential bounces in stocks that held up reasonably well yesterday.
SolarCity (SCTY) continued to act well after the igniting break out at $36.20. The stock met some buyers early in the session to push through the short-term resistance at $39.21 but then it pulled back sharply with the market. The stock managed to close well off of lows to put in a doji candle and is still in the game for higher prices if the market can firm up.
Apple (AAPL) is getting a small boost pre-market from news of a product event on October 22nd when they are expected to unveil the new line-up of iPads. AAPL did sell-off yesterday, but its 1.4% drop was actually much better than the Nasdaq’s 2.0% plummet. The stock is still holding on by a thread to bullish composure, and you could watch the wedge pattern that has been forming for reference.
Whole Foods Market (WFM) had a breakout failure but the pattern still looks OK. As long as it holds the upper level base of $58.50, its upward momentum could stay intact. You have to give it a little bit of a pass yesteray due to the broader market weakness.
Goldman Sachs (GS) could be a prime short candidate with some sideways action to work of its current oversold composure. The bank stock is hanging by a thread at the current trend line support at $153. A break below this could bring in some sellers.