After a 17-20% move off the highs for most indices that market finally had a big reversal day yesterday. This morning it appears we are set for a down open as we digest yesterday’s big swing. A technical outside day where we made new lows on the year and then closed on the highs should still lead to some higher prices in the near future if this market has any juice. That can be considered Day 1 of a new attempted rally, and the action over the next several days will be telling.
Market commentators seems very divided on whether they think yesterday was the low of the year (or decades), or whether this was just an oversold bounce. I will use retracement rules to measure the strength and commitment to yesterday’s action. The SPX had a range from the low of 1101 to close as 1172. If you use retracement rules and Fibonacci levels, 1146 is the 61% retracement of yesterday’s candle. Market can test this area, if it holds, that will tell me we are seeing some commitment to the move and there is a chance for upside.
Follow through 1137 is the 50% retracement area that needs to hold to keep the momentum and validity of yesterday’s candle constructive. Any close below the 50% area puts yesterday’s bullish case in jeopardy.
Traders looking for follow-through of this bounce would like to see these levels hold and then a trade through yesterday’s high of 1172. That would open the door for a move to a micro level of resistance around 1180, then bigger levels are 1198 with a Big Zone at 1220-1225.
The go to stocks acted best yesterday. Most didn’t even take out their year lows. They held higher and Soared higher. At this point just stick with the cream of the crop, the leaders of each group. No second or third tier names!
TECH had the best bounce. If you look below I defined areas of where some bigger resistance comes into play if these stock trade through yesterday’s high and we see upside follow-through. The same rules apply for retracements. If these stocka start to give back over a third or half of yesterday’s gains, this market will be in a bit of trouble.
Apple Inc. (AAPL) was the first I turned to to lead the market yesterday. It was a great indicator for direction, and after a stellar earnings report it is holding up well. It held the 50day moving average (way above all the indices) and has some “easy room” to bounce to 380-383 where the higher moving averages are curling down and the momentum level that broke.
Amazon.com Inc. (AMZN) held the $190 level and took back its 50day moving average. This easy bounce can go to the $210-213 which was the previous are of support that will new be some big resistance.
Baidu.com Inc. (BIDU) took back the 50day moving average and has some room back to the $147-150 zone.
Google Inc. (GOOG) filled the earnings gap and reached my $540 target. It had a nice bounce as it has been acting strong when we get some bounces. This has room back to the $585-588 area.
VMWare Inc. (VMW) fell quick after reversing on its earnings report and got didn’t show as much relative strength as it did a few months back. It was upgraded this morning and has some room back to the $91-94 area.
Netflix Inc. (NFLX) held the 200 day and now ahs room back to $251-253.
The Fed basically said we are in a Japan type mode. Slow growth for an extended period of time. This tells me that the indices will not be at new highs, so we have to trade the ranges. We must actively manage positions. Everyone must continue to watch key areas and only be in the best stocks. I also like that way they went out through 2013 so all market players know the “playing field”. This is the message to Washington that they are done. It’s now time for Washington to act in a decisive manner. No more antics like we saw a few weeks back.
Disclosure: Long SPY, QQQ, AAPL, AMZN, BIDU