How Deep Will the Pullback Be?

World are mixed this morning as Europe is on the third down day after some weaker than
expected PMI data. The pull-back is still very controlled but needs to hold soon. Nikkei is near 2013 highs as Japan has given multiple spots to enter and adjust. China is off a little but it could be worse considering its PMI data.

Fed minutes did come out yesterday and everyone is interpreting it differently. At some point they will taper and rates should go higher. The 2x Inverse Bond ETF (TBT) turned back up at the $75 pivot mentioned from the Morning Call.

Metals took it on the chin and broke another key level. The GLD level for more action was $121.70ish, but weakness there should be no surprise as it’s been in a strong downtrend for most of this year.

US markets just had a three-day pull back, which has been a bit rare. The S&P peak was 1802 and yesterday’s low 1777, so if you maneuvered perfectly so far you could have saved 20 handles or made a cute two points short the SPY. It wasn’t easy money, but switching some gears Monday did make sense as you never know what type of corrective move will take place as it unfolds.

Today S&P futures are up 2-3 handles. If the market fades, see if we hold the prior breakout around 1775 with the 21-day EMA down at 1766. Either way, pressing shorts after three down days has not been the profitable trade this year.

In Tuesday’s Morning Call we went over a few warning signs from high beta tech and other momentum names to “switch some gears.” We will revisit them in today’s Morning Call to see where they are now.

3-D Systems (DDD) was mentioned in our Morning Call on Monday when the stock put in a topping tail after new highs to flash some signs to take caution. On Tuesday it had a sharp sell-off and some downside follow-through yesterday back into the 21-day at $69ish. Use yesterday’s low of $68.30 as the new point of reference to trade around. The rest of the group was weak as well (SSYS, XONE, VJET, ONVO) so I will pick one of two and look for any signs of a Red Dog Reversal. Voxeljet (VJET) in particular got slammed yesterday after a negative report from Citron, dropping 30+% and down another 10% this morning.

We also talked about Facebook (FB) hanging by a thread at $45.80 level on Monday. The stock had a weak bounce last two sessions. The longer it stays below the downtrend resistance at around $47.60, the higher the probability it could break this key support level to the downside. It was upgraded today, so see if it can hold today’s gap up.

Boeing (BA) flashed the first sell signal on Monday when it put in a topping tail after making a new high. The stock had a sharp two-day pull back following this sign for caution and dropped another 3.3% yesterday. Next support comes in at $131.58 where the 21-day EMA comes into play. Big run from our 2013 thesis. Entries and exits matter.

Apple (AAPL) broke below its 8-day EMA on Monday and I got stopped out around $523.50, then it had an inside day to digest the two-day pull back then saw some down side follow-through yesterday as it broke below the 21-day EMA. The next pivot support to watch is $512ish. It needs to hold this level to avoid additional selling pressure.

Google (GOOG) Had a breakout failure on Monday at 1041 and now it’s back in the upper consolidation but needs time to rebuild.

Tesla (TSLA) has been very weak and broke another key level Monday at $132ish. It tried to bounce Tuesday and got hit yesterday, but is up a bit this morning. See if it holds. New pivot support is now $119.22 then below that is $107. TSLA needs to get above and stay above $127-129 to relieve some pressure.

Zynga (ZNGA) has been in very big channel for about 15 months. Some news of institutional accumulation it down here helps this potential “treasures for trash” trade. I did buy it yesterday and it cleared some resistance and looks good for a swing. You could put a stop in at $3.85 and see if this the gap up to $4.88 could be filled pretty quickly, but it does look like it could see $6 at some point in the first quarter of 2014, in my opinion.

Here are some quick thoughts on sectors:

The Financial Sector ETF (XLF) is still hanging in tough above the 8-day EMA showing some relative strength. Continue to watch this key moving average at $21 for support. Below that we have the 21-day at $20.81.

The Homebuilders ETF (XHB) continues to get selling pressure from the downtrend resistance that has been in place since May. The ETF is hovering around its 8-day ema at $30.90ish. It needs a break and close above $32 to get some upside momentum.

The small cap Russell 2000 Index ETF (IWM) has been lagging the market as it failed to make a new high on Monday which was then followed by some red candles. Next support comes in at $108.62. Below that $107.14 is the next bigger support level.

The Consumer Staples ETF (XLP) broke below its 8-day EMA at $43 yesterday. Next support level stands at the 21-day at $42.54.

I will be heading the West Coast this afternoon for the Las Vegas Trader Expo. I will be in the Charles Schwab Booth at 3:15 Friday and 10:15 Saturday, so definitely come by if you are at the convention.

Disclosure: Scott Redler is long BAC, ZNGA. Short SPY.

• Become A Funded Futures Trader