How Far Can This Oversold Bounce Go?

US stock futures point to a higher open again Tuesday, but are well off early morning highs after American Airlines filed for voluntary Chapter 11 bankruptcy. Hopes continue to surge that Europe will again take action to stem the tide of a deepening sovereign debt crisis. Bond yields remain high in major Eurozone countries, and policy makers are discussing creative ways for re-financing debt. Italy saw its borrowing costs surge at a action of three-year treasuries today, which had been foreshadowed by a rise in bond yields on the secondary market.

AMR Corp. (AMR) shares fell 60% in the pre-market after AA filed for bankruptcy protection. The company reported around $4 billion in cash and equivalents, and replaced its CEO with Gerard Arpey with Thomas W. Horton. American Airlines will continue to operate a normal schedule while it enter bankuptcy.

Despite those aforementioned rising borrowing costs in Europe, European equity markets are higher again to today as the Euro gained 0.4%. Today’s gap up will come despite Fitch Rating lowering its outlook on US credit from stable to negative, although it kept America’s triple-A rating intact. The revised outlook resulted from another political gridlock in Washington, where the so-called Supercommitee has not been able to agree on fiscal measures to reduce the US deficit by $1.2 trillion over the next 10 years. Reports also continue to suggest that S&P will likely cut France’s triple-A credit rating in the near future.

The Wall Street Journal reported this morning that Facebook is preparing for a 2012 IPO between April and June. Analysts believe the public offering will raise about $10 billion and value the company at around $100 billion. Social networking and new internet IPOs have been a mixed bag in 2011, with LinkedIn (LNKD) enjoying tremendous early success before falling off, and Groupon (GRPN) experiencing heavy selling over the past week after debuting early this month.

TECHNICAL TAKE

Markets had a strong gap up yesterday with limited intra-day action, which was positive for investors but not necessarily for short-term traders. Traders that positioned into yesterday’s afternoon dip are getting rewarded as we are getting some upside follow through this morning. Cyber Monday proved as strong as Black Friday, and there is more talk about leveraging the EFSF. At this point, the market is working off extreme oversold conditions and still has a ton to prove if this were to be more than just an oversold bounce.

There are several areas of resistance to take note of for today’s intra-day action.

Resistance #1 will be the $119.19-120.35 area, which is the area right under that pro gap from November 21st.This could be the easy spot to bounce to. If you did get long last week on Wednesday, Friday or Monday, this is a spot to sell some for the quick bounce It would be very impressive to close at the high end of this zone today.

Resistance #2 is the 50-day moving average that is curling down (a bearish sign). The zone stretches from $120.75 to $121.43 (the gap fill). This is the area that some technical traders could look to test some new shorts if there is nothing concrete out of Europe and bond yields continue to surge.

Resistance #3 is the $122.75-$123.25 zone, which can be considered the line in the sand for the bears to keep bearish composure intact. I don’t expect this area to come into play this week, if it comes into play at all.

The Tech sector is still broken on the charts, but showed strength yesterday and could continue to lead any bounces.

Apple (AAPL) closed on the 200-day Friday and then had a nice move yesterday. The stock still has some room to the $383-385 area. I would sell some longs if you bought yesterday or by the 200-day in this zone, and let the stock prove it can change character, from weak to strong again.

Amazon.com (AMZN) has been broken since earnings. Some talked about positioning on Friday for some great retail results. I waited until yesterday. It still has some room to fill the gap and perhaps see $197-200.

Baidu.com (BIDU) seems to be one of the only Chinese stocks still in the game, but there is no real pattern here.

Google (GOOG) still shows relative strength. Institutions seems to be accumulating it for the long-term, but short term it’s just a trade as it gives two way action. If you bought yesterday, perhaps taking profits into the gap that gets filled in the $591-594 zone would be prudent.

Intel (INTC) has given a nice two day move and still seems investment quality. It has some short term resistance around $23.90-24.10.

VMWare (VMW) had a nice day yesterday and has some room back to $96-97.

IBM needs time but remains investment quality in my opinion. It will have a lot of resistance around $184-185.

The retail sector still acts well, especially after a strong start to the Christmas shopping season.

Mercado Libre (MELI) has a nice chart and is showing a ton of relative strength. This should be on the go-to momentum list.

Deckers (DECK) and Under Armour (UA) both had nice days yesterday and continue to act well.

Macy’s (M) is still above moving averages. It’s a slower trading stock but looks good for higher prices.

Lululemon (LULU) is losing some of it’s momentum as it is less bouncy lately.

Wal-Mart (WMT) still hangs tough and if you are a macro investor, stay the course. No short term pattern here.

Oil Service ETF (OIH) looks a bit like an inverted head and shoulders bottoming pattern is being built. Under that assumption, last week’s low could be a great area to trade long against on a micro and macro level. There will be a ton or resistance though in the $119.73-121.52 area.

Panera (PNRA) had a break out to the upside through highs. It’s good to see that can happen with new IPOs.

Linked In (LNKD) continues to get punished and it was listed as a short on the T3Live “Off the Charts” newsletter with the action area around $70.

Banks were the first group to trade well off the highs yesterday and are still a problem area.

Watch Bank of America (BAC) if to goes through a recent low of $5.13. If that happens it, will likely also result in extreme pressure across the rest of the sector.

Goldman Sachs (GS) has the $87-89 area to trade long against. If this area doesn’t hold, you can see pressure as well.

Disclosures: Scott Redler is long SPY AAPL AMZN

• Become A Funded Futures Trader