US stock futures point to a slightly lower open Wednesday after yesterday’s 1.5% gain to kick off 2012. Improving US economic data has been one catalyst for the rally over past few weeks, and that continued yesterday with a strong ISM survey. On the flip side, bond yields are back on the rise in Spain, and Germany saw lackluster demand at an auction of 10-year bonds. Non-Euro member Hungary also saw its currency fall to a historic low vs. the Euro after a passing a controversial law limiting the independence of its central bank and possibly damaging its access to bailout funds.
On the political front, Mitt Romney narrowly defeated the hard-charging Rick Santorum in the Iowa caucuses. The victory was unimpressive and it still feels like Republicans are looking for an excuse to vote for anyone but Romney. The results foreshadow what I think will be a long, hard Republican primary and a tough task to unseat Barack Obama, despite his low approval rating.
As mentioned, US data has boosted the market over the past several weeks, and now investors will have their eyes trained firmly on Friday’s first employment report of 2012. We could be seeing a slight de-coupling of the European and American economies, with the US looking more likely to avert another deep recession. While data has boosted hopes for a sustained bull market on the horizon, the European sovereign debt crisis continues to prevent stocks from gaining any sustained head of steam.
The SPY put in a very tight range yesterday that we can use as new points of reference.
Yesterday’s low was $127.43, which is your pivot to trade against. If the market gets pressured early on, it will be interesting to see how much of yesterday’s gap gets filled. Yesterday’s open was promising, but the action intraday was lackluster. Bulls would like to see at least half of yesterdays gap stay intact. $126.50-127 should be buyable if the bulls want to keep the short term momentum.
Above yesterday’s high of $128.38 the next big resistance is $129.42. I think you can use the same strategy across the sectors today. With a softer open, you can see where the relative strength or weakness will be today and they use yesterday’s low and high as action areas.
Example: If Amazon.com (AMZN) trades through yesterday’s high of $179.47, I will trade for cash flow up to the next micro level of $183ish. See how Tech handles the miss by Acme Packet (APKT) you are seeing some collateral weakness in Juniper Networks (JNPR) ADTRAN (ADTN), Tellabs (TLAB) and BroadSoft (BSFT).
Lululemon (LULU) was upgraded by Goldman Sachs (GS), so it will be worth watching. Sometimes you will see a big upgrade like this prove to be a short-term top for a hot stock like LULU, so be careful. We saw the GS downgrade of AMZN serve as its short-term bottom.
MGM Resorts (MGM) got the move some were looking for in December and broke a longer term downtrend. It did get a positive mention today and has some more room to the $12-12.41 area. Las Vegas Sands (LVS) is smack in the middle of the range with not much to do.
I did sell my Google (GOOG) yesterday to book the two-week trade. I will be actively trading it all year, but macro investors should stay long and keep it until the $750+ target.
Disclosures: Scott Redler is long SPY, AAPL, AMZN, JPM, BAC