There are some red arrows around the World as it seems like the equity markets would like a small rest. Europe is down small & Asia finished down as the choppy trade continues there. Yesterday we had a rare red day despite the Fed statements to stay the course.
Futures are off a bit as we head into the last day of October, which turned out to be a very tradable month. Earnings season is winding down and it seems like both the bulls and the bears would like some type of corrective activity. It will be interesting to see if we can retrace a bit. The first step would be to get and close below 1757, with the 8-day EMA at 1754. A test of the prior breakout and 21-day EMA at 1730 would be healthy. Resistance stands at 1775.
In today’s Morning Call we will check the temperature of some sectors and outline support levels to watch.
The Nasdaq ETF (QQQ) had a small Red Dog Reversal at $83.26 yesterday, but managed to close off of lows and held above the 8-day EMA. Use yesterday’s low of $82.58 as the new level of interest to watch. The next level below that is $81.35 and then the 21-day sits at $81.08.
The Russell 2000 ETF (IWM) got hit harder as the ETF dropped 1.37% to break below its 8-day EMA for the first time since October 10. Next support sits at the 21-day EMA at $109ish.
XLF enjoyed a nice rally since October 9th. However the upside momentum has been slowing down in this group as the ETF has been basing above the 8-day EMA following the gap down on October 23. A break below yesterday’s low of $20.72 could lead to a retest of the 21-day EMA at $20.57.
The Homebuilders ETF (XHB) also retraced 1.18% but managed to hold above the 8-day EMA. Next support sits at the 21-day EMA at $30.46 if the 8-day fails to provide support today.
The Consumer Staples ETF (XLP) led the market up during the recent rally. It’s a bit extended from the 8-day EMA and had a small pull back of 0.86% yesterday. The ETF closed on lows signaling potential downside follow through. See if it could find some support at $42.18 where the 8-day comes into play.
Most high beta tech stocks already reported with Facebook (FB) being the most recent last night. The headline and mobile numbers in the report were very good, and at first the stock took off and traded as high as $57ish. However, on the conference call some data came through that teens are leaving the site and the stock sold off hard. It traded all the way down to below $48 last night but is now trading around $50. FB has doubled since its last earnings report, so it can be forgiven for wanting a little rest. Digesting above $48.75 would be good, this could be a good spot for a high-level stop.
LinkedIn (LNKD) got hit hard after being priced for perfection. Remember it came from sub $100 not terribly long ago. It will need time to rebuild. For active traders, you could use yesterday’s low of $222.22 as your pivot.
Apple (AAPL) had an inside day to register a 1.6% gain after the potent pull-back on Tuesday. Holding above $514.50 could keep it interesting as it works off the bearish engulfing candle from earnings. I think with some digestion, it could go up again.
Google (GOOG) continues to stair-step higher. Holding above the current support level of $1010, which lines up with the 8-day EMA, could keep its momentum intact. If the market has some weakness, it would be nice to see an upper-level base form here with $1039 being the resistance pivot.
Amazon (AMZN) is also holding higher after the earnings gap. The longer it stays above $356.29, the higher the probability it could see higher prices.
Netflix (NFLX) failed to break above its current resistance of $330. The stock has been forming a bear flag following the potent sell off after earnings. The longer it stays below $330, the greater odds we could see lower prices. It needs to hold $309-310 to avoid additional damage.
Tesla (TSLA) is still showing signs of fatigue as it changed character on 10/21 when it broke below $181ish after lagging the market the prior week. The recent pivot low is $153 with the 100-day below that at $147ish.
Some retail stocks are looking better.
Target (TGT) poked its head out of the downtrend resistance that has been in place since August 21 with 2.16% gain yesterday. The stock closed on highs, showing commitment to the intra-day gains. Look for potential upside follow-through above $65.95 as it could see a gap fill at $67.95
JC Penney (JCP) is perking up a bit after dip buyers stepped in at $6.24. A break and close above the 21-day at $7.91 could add some fuel to its rally.
Wal-Mart (WMT) has been forming an intermediate-term descending channel since March. The stock has been approaching the upper end of this channel after reclaiming its 8- and 21-day recently. The longer it holds above $76.50, the higher the probability it could break out of this monthly channel at around $77.60.
The metals continue to be a frustrating spot. Every time they look like there can be some commitment, they counterintuitively sell off. Yesterday the Fed announced it was continuing full-size QE, but GLD got hit right after the statements. Use yesterday’s low $128.81 as a level to trade against, and below that is $128.13.
Disclosure: Scott Redler is long TGT, JCP, HIMX, GOOG call spread, FB calls. Short SPY, long SPY puts.
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