Musk Watch: TSLA, SCTY

There are some green arrows around the world as most indices try to continue the feisty snap-back that started last week. Europe is up small looking for a Day #4 while Asia has a bit of potency with the Nikkei is up 1.7% and the Shanghai is up a surprising 2.03%.

Most market participants are wondering: was that the correction? In 2013 that was the norm – a 5-7% pullback off the highs, depending on which sector, then new highs in weeks/months. I’m not sure if it’s the same for 2014 but we have our tools to measure that.

Technically the markets gave us a lot of clues. We broke the accelerated trend around 1830ish (risk off) then broke the intermediate-term trend at 1770ish. On Tuesday we put a low in around 1740ish and on Wednesday most indices gave you a Red Dog Reversal (buy signal) as the oscillator was -75ish (which is usually a good spot to cover shorts). On Friday the bounce-back extended, squeezing some shorts through 1770ish taking the move back to 1798.

Today S&P futures are down 4-6 handles and the oscillator is almost back to zero. The market should do some packing and filling. Now we get to measure the commitment to last week’s snap back for clues to whether “that was it.”

A very micro retracement back down to 1785-1787 could keep upward momentum intact. If the market does do some work above 1770ish, I’d deem that constructive for the bulls (it would hard to make a big bearish argument). If we give that area up this week, the Bears will growl for at least a re-test of 1737. If we go green today, I think some this mini-pain-trade could continue through 1798 with very big resistance around 1809.

In today’s Morning Call I will go over some sectors with levels and thoughts.

QQQ rallied almost 2% on Friday to clear some short-term resistance levels. The ETF has reclaimed all key moving averages after a strong two-day bounce. Holding above $86 could keep its momentum intact.

IBB held in well during the recent pull back to show some relative strength. The biotech ETF is forming an upper level descending channel that could resolve to the upside with a break and close above Friday’s high of $246.36, so keep an eye on this hot sector.

XLF broke and closed back above its 100-day EMA after a 1.24% gain on Friday. The ETF is approaching key short-term resistance at $21.35. Buyers could step in more aggressively if it could clear this resistance level.

DIA, which has been the weakest sector, reclaimed the 200-day EMA. My rule is that if a stock breaks the 200-day it must reclaim it within 3-4 sessions, otherwise that’s an indication of potentially more weakness to come. It took it back within two sessions, and now needs to hold above to stay somewhat constructive.

We will look at the levels and opportunities in High Beta Tech after earnings and assorted news has created a lot of divergences.

Apple (AAPL) had a nice gap up on Friday on the share buy-back news. The stock held majority of the gap before extending higher to $523 area. It’s sitting right in front of the 100-day. Holding above Friday’s gap of $517ish could give the stock some power to reclaim its 100-day. There could be another cash flow spot at $523ish, then next resistance to watch after that is $530ish.

Google (GOOG) continued to show its leadership as the high beta tech stock is already back at highs after a three-day rally. A break above $1186 would mark a new high. Some consolidation above Friday’s low of 1160 to allow the key moving average to catch up could give us an entry to get involved.

Netflix (NFLX) triggered our buy price of $412.40 from Off The Charts and reached our target of $430 within one session on Friday as the stock had another round of short squeezing. It closed on highs, signaling potential upside follow-through but it’s hard to chase up here. Some digestion would be healthy after a strong break out to allow the short-term moving averages to catch up.

Amazon (AMZN) had a nice bounce on Friday to put in a bottoming tail and is flashing some buying signals at these lower levels. A break and close above the 100-day at $362 could bring in more buyers. The earnings gap, which should be big resistance if it sees that, is $375.

Baidu (BIDU) broke above its descending channel on Friday and could have some continuation. If you it can get above $162.75 I think it could see $168ish.

Social media names continue to be a focus.

Facebook (FB) had a nice move Friday to make a new all-time high. It digested above the earnings gap and had nice continuation. Now it needs to hold above $63.77, while above $64.57 it could continue.

Yelp! (YELP) and Yahoo! (YHOO), the exclamation companies, announced a search deal over the weekend that has Yelp! up more than 10%. I wouldn’t chase this gap up, instead I think you could perhaps trim some into the “excitement.” Let’s see how much of this gap holds.

Twitter (TWTR) had a nice move Friday as it held the earnings low around $50. It did push into its gap on Friday. Barron’s this weekend had a negative piece, but they don’t have much credibility in this group after being very bearish on Facebook (FB) near its lows. TWTR is off a bit, though, so see if it stays above the earnings pivot to continue to fill its hole that starts again at $54.92. Trade this on smaller time-frames for now.

LinkedIn (LNKD) has been out of play for multiple months and then reported decent earnings but muted guidance. It closed off Friday’s low so see if it can hold $202ish for another pattern to build.

Zynga (ZNGA) has been back on the map recently. It needs to hold $4.30ish to stay interesting, and above $4.60 maybe it could try for $5+ again.

Metals also look a little bit more interesting.

GLD is getting very tight and could make a move soon, in my opinion. Each time they seem “ready to go” they fail, but let’s see if 2014 is different as they’ve been a bit stronger. GLD needs to get and stay above $122.50-$123.00 with authority to show some continuation and power.

GDX needs to get above and clear $24.20ish.

SLV needs to clear $19.84 with authority and hold above it.

Musk watch

Tesla (TSLA) acts very well, and it’s been like that since the Red Dog Reversal on 1/14 around $138. Now it looks like it wants to take out the $188 area for new all-time highs. It still needs to deal with earnings.

SolarCity (SCTY) continues to act well in the solar group. If it can get some momentum above $72.50ish perhaps it could get back in play.

Corrective phases can be very tough, but there is also a ton of opportunity to identify relative strength and get better prices on stocks you like – on multiple time-frames. Corrections are also a time to figure out who you are as a trader/investor. If you were jumping out of your skin, you have too much size in short-term equity positions. If you were content to get some better average prices on recent buys, then you have a level-headed plan. If you didn’t take down risk at SPX 1830 or 1770 and waited until the doomsday guys came on TV Tuesday at 1740ish and hit out the bottom, you need to change your process. Navigating the markets takes time and we all learn each day. Be honest with yourself and change can happen.

Disclosure: Scott Redler is long AAPL, SCTY, FSLR, ZNGA, GLD calls. Short SPY.

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