Traders Cautiously Optimistic After Last Week’s Strong Rally

A term I’ve heard from a lot of traders this weekend was “cautiously confused”. Lots think that Europe is a big problem and ready to take a turn for the worse, but equity markets are still acting well. This is when you leave your “opinions” at the door and watch levels with a plan. Evaluate the action with an approach.

Last week indices put in a double bottom in the 1357 area, and responded well. After a 4 day bounce from that level, it’s time to digest/evaluate how we hold up in the next few days. All stocks are not created equal, so it’s been a very stock/sector specific approach, which has defined 2011. The S&P is about 1% or so from the highs, and overall macro investors have been rewarded. Traders that are a bit more active also can’t be upset as we’ve had tradable moves that gave us signals before each short term momentum switch.

The S&P is above key moving averages but could use some time to digest. S&P support is 1392-1397. If this level holds, lots of trapped shorts will have some choices to make and pent up bullish momentum would stay intact. Second level support is 1383-1387, holding this area would also be healthy but this would change the speed a bit – to a slower rally. 1378 is the line in the sand, a close below and complexion changes.

S&P resistance is 1404-1407, with spot at 1412-1415 then the old highs at 1422.

Apple (AAPL) will be good to watch, we are now on Day 4 of digestion. Each day the stock has been “shortable” around the open for cash flow and it’s traded through the previous day’s low each time, then it regroups. I’m looking for a “Buyable Pivot” to trade against long. I did nibble a little Friday as it traded below $602 and then came back above. This could go on for days, we will see when it changes. The new pivot is $600.50, so same drill. It is out of play and sluggish, but this is what happens after a $40-50 gap up. I will focus here the next few days.

Amazon (AMZN) had powerful results Thursday evening. This stock will also need time to digest. Use Friday’s range to trade against $220-$228.69. I have been wrong this year on AMZN, I was bearish on it.

Google (GOOG) found support around it’s 200day last week ($590.20), similar to last quarter when it sold down and held that important average. Since then, it’s responded pretty well. It would be constructive if it can stay above $600 to rebuild the chart.

LinkedIn (LNKD) we’ve focused on this many times in Off the Charts as a potential big winner for 2011. It held the $96-98 area during the corrective phase and it’s been acting very well lately. Friday it pushed through $108.50 resistance, which I outlined a few times. Earnings will be out soon, if they impress like last quarter we can see new highs here.

Baidu (BIDU) they bought this one on bad earnings, but it sold off hard into it. I’d avoid for a bit.

Netflix (NFLX) stock is the poster child for “composure changes”. We nailed it early in the year from the long side, then the reversal highs on at $130.50. Now it’s going to be controlled by a huge earnings downside gap. Pivot support is around $81.50. I’m sure we will hear “chatter” here every few days for quick trades as it goes lower.

Gold (GLD) is trying to break above its intermediate downtrend. I’ve been long since $160.50ish, and will stay with It as long as it holds above $160.10 Needs to get some power soon.

I sold my CF Friday as it had a nice move- and I won’t be in it for earnings that come out this week.

We have a jobs report Friday, which will be a focus on everyone’s plate. The question is, do they squeeze the shorts into it, or correct us so we won’t need lofty figures? I will evaluate it each day.

Disclosure: Scott Redler is long AAPL, MSFT, JPM, BAC, GLD. Short SPY.

• Become A Funded Futures Trader