We’re seeing some red arrows around this morning as most of Europe is down half a percent, dragged down by the banks. Asia also got hit pretty hard, putting in one of those “days to take notice.” The Nikkei finished down 1.9% after starting positive putting in an outside day. The Shanghai composite finished down 1.2%, and we will see what that leads to.
Our markets closed somewhat overbought as we pushed further into that 1740-1760 target zone. Bulls have been a bit spoiled as we are very far extended from the 8- and 21-day moving averages that typically help guide a bull tape. Yesterday we also had a crack in momentum tech as NFLX was sold off on good news and put in a very violent candle. The morning volatility gave a “shot across the bow” for some traders to take some risk down.
S&P futures are down 10-12 handles after peaking at 1759. We have some support at 1740 then 1735. The prior breakout area is at 1729, which will be a spot to measure to see if we can hold. The 8-day EMA is also around that zone, and the 21-day is at 1708, a crucial trend spot.
Some money rotated to the Homebuilders and Utilities as it seems like rates could stay lower for a longer time period, so we will take a look at those sectors in today’s Morning Call.
The Homebuilders ETF (XHB) had a nice gap and go to register 2.36% gain yesterday. The ETF closed above all key moving averages, showing healthy strength. See if some buying interest comes here on this down open. It would be constructive to see the ETF hold $30.10.
Toll Brothers (TOL) has been holding higher since October 9th lows. The stock broke and closed above the 100-day EMA for the first time since mid-September. It could see some extension above yesterday’s high of $32.91. Next resistance stands at the 200-day of $33.63, but it needs to hold $32ish to stay interesting.
After a two-day flag, Lennar (LEN) extended higher with nice gains of 4.21%. The stock has room for a move back to retest the 200-day EMA at $37.88. A break and close above this key moving average could add some fuel to its rally. It would be constructive to see the stock hold $34.80ish in this down open.
DR Horton (DHI) is also trying to hold higher. It has a lower level flag that could lead to upside resolution with a break above $19.34. The next obstacle is the 100-day at $20.17.
The Utilities ETF (XLU) cleared the downtrend resistance yesterday with a gain of 1.28%. It has some resistance at $38.90 from September’s pivot high, but a break and close above this level could confirm the validity of this rally. The ETF needs to hold $38ish to stay interesting.
Entergy (ETR) had nice extension after two days of rest. The stock has reclaimed the support of the 100-day moving average. It could see some upside follow-through above yesterday’s high of $67.65.
EQT Corporation (EQT) has been trading on a healthy uptrend since the nice gap and go in April. The stock has been resting above its 21-day for the past few days. A break above $90 could set it back in motion.
ONEOK (OKE) has a tight upper level range that could resolve to the upside with a break above $56. The stock had a nice Day 1 yesterday and could see some continuation today.
High beta tech continues to provide opportunities, but there were some cracks under the surface yesterday while the averages held up OK.
Netflix (NFLX) saw its gap up sold with intensity, and it’s getting some downside follow-through on the news that Carl Icahn sold half his stake. Yesterday’s low is $321.50. Support at the 50-day at $299 is worth a look, and if you are short from yesterday, covering some into this down open makes some sense.
Apple (AAPL) after a big move from $488ish up to $529, the product launch didn’t turn out to be a “sell the news event” like we often see. However, it was a wide range candle that might need some time to work off as earnings are not until next Monday. See if this can go positive today. The $514 level is worth a look, and holding above yesterday’s low of $508 would be constructive.
Google (GOOG) is hanging tough and holding above $995 would be constructive. A trade above $1019 could set it into highs if the market lets it.
Facebook (FB) showed some fatigue recently. The 8-day stands at $51.90 and the 21-day is $49.88.
LinkedIn (LNKD) is still trying to hold up. Use $241 as the area to trade against.
Tesla (TSLA) held the 50-day yesterday but hasn’t been as strong the past few months. Most traders are being a bit more cautious here. The level to trade against is $166.11.
I haven’t tried the Inverse 2X Bond ETF (TBT) long since it broke its upper level wedge on 9/18 when it sliced below $78ish, which changed the composure a bit. The 200-day EMA could be worth a look down near $70.24 in coming sessions.
Metals showed some strength yesterday and one would have thought they would be up in the futures decline. GLD needs to hold $128.22 to stay interesting, otherwise there is a gap below.
Today should be an interesting day. We need to see if anything goes green and can absorb the down open. Then we need to see if the prior breakout holds, or fails like has done the past three times.
Disclosure: Scott Redler is long GOOG, DIS, AMAT, XHB, KORS, BAC, CAT calls. Short SPY, FB