World markets are mostly seeing red this morning in response to yesterday’s sharp sell-off in U.S. markets. Japan’s Nikkei continues to lead the global sell-off, dropping 4.18% overnight while the Hang Seng fell 2.89%. In Europe the hardest hit index is the German DAX, which is down 1.2% at present.
S&P futures have at least found their footing, through, and are up 6-7 handles at the moment. The index broke key intermediate-term support levels yesterday after a much worse than expected ISM manufacturing survey number. Many economists tried to blame the weather, but it appears with QE being wound down that the market is now taking economic news at face value. Good news is good news, while bad news is bad news – and at least that clarity could make things a bit more straight-forward for traders.
The S&P broke below prior pivot lows of 1768 and 1746 to close on dead lows. Next key support stands at the prior breakout of 1730. Below that we have the 200-day at 1708ish. Active traders could use yesterday’s low of 1740 as the new point of reference to trade around if we get a better bounce today than yesterday.
Last night my thoughts were included in CNBC’s worldwide blog by Patti Domm – here is the quote talking S&P levels:
“We just broke the intermediate trend line. If you don’t reclaim that within a session or two, you typically stay in that direction,” said Scott Redler of T3Live.com. The S&P fell through its 100-day moving average, 1770, and then fell below another level traders were watching – the November low of 1746.
Redler said the next line of defense is the 150-day moving average, 1736, and after that, the 200-day moving average at 1707. “It does feel like we should hit around the 200-day,” he said. When the 1770 level broke, “it was a clue to traders to reduce risk and even for some bears to add to shorts.”
In the Morning Call I will take a look at the S&P chart with Fibonacci retracement levels.
SPX broke below the 50% Fib retracement level of the move from October’s low of 1646 to January’s high of 1850. The next level to watch is the 61.8% which comes in at 1724, barely below the prior breakout of 1730.
I will also draw out pivot low for sectors for a potential Red Dog Reversal.
The Nasdaq ETF (QQQ) dropped 2.3% to put in a low of $84.07, which lines up with December’s pivot low and November’s breakout level. Use yesterday’s low as the new level of interest in case we get a Red Dog Reversal through this level.
The Financial Sector ETF (XLF) also got hit hard to retrace another 2.5%. The ETF put in a low of $20.50 yesterday. Watch this level for a potential Red Dog Reversal trade. Below that it has bigger support at $20.38. The 200-day is currently sitting at $20.24.
The Russell 2000 ETF (IWM) pierced through some key support levels to put in a low of $108.15 yesterday. Below this the next support stands at $107.15. The 200-day is all the way down at $105.50ish.
The Industrials ETF (XLI) is retesting the uptrend support that has been in since November 2012 after an almost 3% move down yesterday. Use yesterday’s low of $48.62 as the new pivot to trade against.
I will also be watching select stocks to see if we can get some kind of calculated reversal. You don’t have to trade every stock, you just have to focus on executing entries. When volatility ramps up and things are moving fast, maybe pick a stock in every sector that you want to focus on.
Apple (AAPL) held higher yesterday as the stock closed in positive territory. Holding above yesterday’s low of $499.30 could bring in some dip buyers for a potential move up to earning’s gap at $515.
Facebook (FB) shed 1.74% but managed to hold above the earnings gap. This is still one of the best in breed stocks out there that could be considered on weakness. Use Friday’s low of $60.17 as the upper support level to trade against.
Twitter (TWTR) also held up well and finished positive in a sea of red yesterday. This morning it is up more than 1.5%. This could be a place to turn to for a short-term trade, but remember that earnings are tomorrow so this would likely be only a short-term trade idea.
Tesla (TSLA) had a bigger pull back of 2.37% but the stock found some support at its 8-day EMA. It briefly broke below prior breakout level of $179. The longer it stays below this level, the higher the probability it could see some more selling pressure. The 21-day EMA comes in at $168.24.
Goldman Sachs (GS) had a potent sell off to break below its 200-day EMA yesterday. Use yesterday’s low of $159.77 as the new pivot to trade around.
Disclosure: Scott Redler has no positions