Market Needs Rest After Quick Bounce-Back

We are seeing more green arrows around the world as Yellen’s dovish Congressional testimony helped keep last week’s move off the lows fast and furious. Europe is up across the board and Asia continues higher.

We are now Day #6 of this rally that started last week with a nice Red Dog Reversal around 1740, and yesterday we hit 1823 (80 handle move). This type of move is sometimes tough as it happens so fast that it creates a “pain trade” scenario where some are caught short, some took off longs too early, and some never got back in – not the easiest to navigate..

I like to try to buy on Day #1, add on Day #2 continuations, and trim and trail Day #3. On Day #4 I start to get a bit upset that I’m out of good names too early. Day #5 I look to potentially test some shorts (lke I did yesterday and got frustrated as they extended further).

Anyway, we have yesterday’s highs to watch in many sectors across the board. Use that as a pivot. Maybe we could get one more push above, then back below and retrace a bit for a healthy breather before new 2014 highs.

The S&P from yesterday was 1823 (SPY high $182.43), DIA high $160.09 and QQQ high $88.97. These are the pivots for action.

In today’s Morning Call we will look at the banks that did not lead this move but could potentially play some catch-up.

Bank of America (BAC) broke above the downtrend resistance that has been in place since 1/15. BAC help up the best among this group on the recent pull back. It has room for a potential move back to highs at $17.42 but needs to get above and stay above $17 first.

Goldman Sachs (GS) broke out of the lower level range to the upside at $163 yesterday, leading the banks up with a 2.11% gain. It has room for a move up to $166.40ish where the 100-day could act as short-term resistance. See if it holds at least half of yesterday’s gains.

JP Morgan (JPM) had great upside follow-through after a two-day of rest to add 1.22% to its recent gains. The bank has reclaimed the support of all key moving averages and filled the gap from 1/23 to the upside. Holding above $56.40 could keep its momentum intact for a move back to highs.

Morgan Stanley (MS) is also curling up to form a rounding bottom. The stock closed back above its 21-day EMA and could see upside follow-through today. The next level to watch is the 50-day at $30.85.

Some set-ups from our Off the Charts newsletter have been working well.

Hershey’s (HSY) extended higher after triggering our buy price of $100. The stock put in a new high at $103.85 yesterday but our target stands up at the $106-107 area.

Under Armour (UA) broke out of the bull flag last Friday to trigger our entry price of $106.90. The stock has seen nice consolidation above this buy price, and now a break above $110 could lead to additional upside momentum.

F5 Networks (FFIV) had a nice move up to trigger our buy price of $110.90 yesterday. The stock closed on highs, signaling potential upside follow-through.

Salesforce (CRM) is basing nicely above the 8-day EMA. The longer it stays up here, the higher the probability it could take out the current pivot high of $62.75.

Some other names we have talked about that you should continue to watch:

Facebook (FB) made a new high at $65 after a day of rest. This has been a go-to name as it continues to show leadership. Look for potential upside follow-through above yesterday’s high

Twitter (TWTR) has been making higher lows after its earnings gap down. A break above $54.92 on good volume could bring in some buyers for a cash flow trade.

Biogen (BIIB) continued to hold higher above its 8-day EMA. The biotech stock looks poised for a potential new high breakout above $321.25.

Google (GOOG) traded above $1186ish to new highs. See if it holds higher and extends.

Apple (AAPL) has enjoyed a nice move since the accumulation pattern from last week. The first gap held around $517ish and then again above $523, and now it’s $538ish. Use yesterday’s high of $537.75 as a pivot if it wants to fill more of the gap.

Metals had some follow-through yesterday. There was a nice set-up in the GLD and GDX as of last Friday and now they could use a rest.

GLD broke above $122 and hit $124.75, now it needs to hold $123.30ish. GDX broke above $23.95 and then $25.76, now it needs to digest above $24.93.

At this point the market is hard to chase, but also hard to short. What I’d like to see is a bit of a retracement let some of the bungee cord come in and maybe retest SPX 1790-1805 before a move to 2014 highs.

Disclosure: Scott Redler is long BAC, ZNGA, WLT, GLD call spread. Short SPY.

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