The headlines this weekend were all about synchronized global slowdowns, deflation and decelerating U.S data. Technically, we have had several signs over the past two months to foreshadow a technical breakdown, and now we are at the 200-day moving average zone.
Did you sell some stocks and take some healthy profits as we started the 2nd quarter? Did you sell some stocks to limit risk when IBD put the Big Picture back in “Correction” on May 4th? Did you sell/short when the Head and shoulders top triggered when we closed below 1360-1370? You don’t have to be a day trader to maneuver portfolio’s and save 100 handles or so when complexion changes.
But enough looking back, what should we do now? Friday the markets intensified and closed below its 200day moving average (1284)! This spot typically is support and will most likely become resistance if we can’t quickly power back above. Recent lower support is another resistance area 1291-1295. The longer we stay below these levels above, the greater the probability we see lower prices still.
Important areas of support to evaluate moving forward will be 1245-1255 (the 50% Fib retracement of the entire rally from the October 4th Reversal low, up to the April highs). This was also the spot we broke out from to start January. I would have liked to see that level quickly in order to get some type of calculated bounce in extreme oversold conditions. The Oscillator is only at -45, not an extreme reading.
Futures were down 10-12 last night and now are only down a bit. If we churn or try and stabilize here, it could suck in new money at levels that don’t mean much, which will frustrate many traders. The next zone is 1215-1220 ( this can’t be ruled out this Summer)
Gold (GLD) diverged from Oil on Friday and ignited. For momentum to continue here, the gap should hold and buyers should defend it. Some digestion can happen here. Staying above $154.87 will keep up the pent up momentum. Next add will be as it clears and closes above $158.31.
In the past two weeks strong stocks tried to hold the 100day moving average. Middle ground stocks held the 150day. Now I think we will need to map out the 200day for most stocks as this can be a magnet for most of them.
The weakest groups got crushed the most as that’s what happens during corrections. Sectors exhibiting relative weakness below all moving averages are the ones with the least institutional support.
Apple (AAPL) helped to give us some clues last week as it broke above $574-576. The market yawned and didn’t care, showing its true weak nature. This caused me to sell mine. Now it broke a small rising channel, so take care here. Use $560.52 as a pivot to trade against for now. The 100day is now $542.45, this area can be tested again if the market remains under pressure.
Google (GOOG) was a nice sale for those who don’t hold stocks the break their 200day in the $596 area. Some made money short there. $568.35 is the new point of reference to trade against. $560 is big support from late last week.
Amazon (AMZN) lost momentum as it traded into earnings gap. Now look at $207 as a short term spot to trade against. I think it will see $196-198.
Priceline (PCLN) is an avoid.
Facebook (FB) was downgraded by Bernstein. I got stuck in some on last week’s reversal pattern. I will stay with it as long as it stays above $26.83.
Banks still grinding lower. JP Morgan (JPM) made a new low of the recent move. $31.77 is a area to trade against short term, but big support moving forward is the $28 zone.
Bank of America (BAC) was upgraded this morning, but not compelling.
Casinos continue to get crushed. This is why you trade levels vs. levels during a correction. Macau numbers came out late last week and added more downside fuel.
Las Vegas Sands (LVS) has been for sale for a month. I tried a few times but there was no real strength. The new pivot to trade against is $42.03.
Wynn (WYNN) has been crushed since the Outside BEARISH day on May 2nd. It also broke its trend around $125 giving another way out. You must honor your stops. You don’t need to be a active trader in order to save money and use high and low level stops.
Remember, during systemic times, normal rules don’t apply. Accept that cash is king. There are tremendous opportunities during times like this if you don’t get emotional and you honor levels.
Disclosure: Scott Redler is long FB, GLD.