US stock futures are lower Monday morning after China lowered its economic growth target. The symbolic 8% growth rate has been targeted for the past eight years in China, but over the weekend they lowered that rate to 7.5%. Chinese Premier Wen Jiabao said the country will transition to focusing on higher-quality economic development with greater internal consumption and service industries.
Futures have bounced off pre-market lows over the last hour, but today could still be a very important day for the short-term direction of the market. There were some faulty technical signals late last week, and today we can have a real test of this accelerated uptrend. Since December 20 we’ve been riding the 10-day moving average with no clear/decisive close below. Momentum traders should watch this trend closely.
Another troubling sign was the breakdown of the Russell 2000 index ETF (IWM) from its upper channel late last week. The Semiconductor ETF (SMH) also started to roll a bit, so that’s worth watching especially with some mid-quarter reports coming out later this week.
Gold (GLD) broke hard Wednesday with no real bounce after Fed Chairman Bernanke’s testimony before Congress. As of now, shorting that $167.50-$168.50 area Thursday or salvaging some longs was the right way to go. The $164 level is the pivot low from that Wednesday.
With futures coming in a bit it’s important to look at key support areas. The 10-day moving average is 1366 (last week we held the 1363-1366 zone). We were set to open below that level earlier this morning, but have climbed back above in the pre-market. We need to see how we handle the first 30-60 minutes of trading. Traders will watch close to give clues of the direction of the day/week!
The next big level would be 1352-1357, with the 20day moving average within this zone. 1340-1344 is a major support zone. If we bounce quickly and get back above 1368-1370, it should relieve the morning pressure.
Some things to watch for clues this morning.
Apple (AAPL) has a small upper range after a huge move. Those who bought a few days after the earnings gap have been rewarded, along with long term investors. It has a big product day Wednesday with the expected unveiling of the iPad 3. Watch Friday’s inside range. $542.50 is Friday’s low, if it starts to get below and stay below that, it could tell us a bounce is not coming. If we take out Friday’s high of $546.80, it will be hard to keep this market down.
International Business Machines (IBM) has also been strong. See if it can continue to hold upper range of $196 for a move above $200.
Banks provided a big boost for the rally last week. Goldman Sachs (GS) finally broke out last week. I will see if $118.50-119.50 is buyable. This area should hold if that break out was real. If we close below this area, it will give us some more clues a rest/correction is coming.
I sold the rest of my casino stocks on Friday, they are due for a rest. Las Vegas Sands (LVS) put in a small outside day after a monster move. I will look to buy back at another time; holding $54 would be constructive.
Wynn Resorts (WYNN) I sold on Friday after two nice buy points. Perhaps I will look to buy some back around $122-124 area.
Oil put a brief double top in on Thursday as it pushed through and failed on that pipeline explosion report. US Oil Fund (USO) has important support around $40-40.50.
Oil Service ETF (OIH) I would think being in a tier one is prudent after a big run from December. If it were to close below $43.35, it could correct a bit. Most momentum traders sold some when it couldn’t hold the most recent buyable strategy at $43.80ish.
Take some caution today as cleaning up some loose positions made sense last week. Today will be important for short-term momentum traders. Longer term we have room to correct, but short term guys should not be so committed here, if we get a decisive close and break below the S&P 10day MA around 1363-1368.
Disclosures: Scott Redler long SPY, OIH, IBM, GS, MS, JPM, LNKD, ZNGA, SIMG. Short DIA, QQQ. Long AMZN puts.