The market has been in a very tight range for the last seven sessions, which isn’t surprising with Summer trading. However, there has been opportunities to carry select stocks for multi-day moves, making coming into the office better than just sitting on the beach (actually, that’s a stretch). Last night, as I frequently do, I gave levels to Patti Domm for her CNBC Market Insider blog.
“It’s really the 1,407 to 1,410 level that’s the level of resistance,” said Scott Redler of T3Live.com, who trades the market’s short term technicals. “If we can get above it and stay above it, you’ll get another round of short covering. You then test the highs of the year, which are 1,415 to 1,422, and I think you’ll be there by Labor Day.”
Redler said the market is in a digestion phase. A level he would worry about is 1,395. “If we close below 1,395, a lot of momentum traders, like myself, will lighten up and probably go net short.”
He said the action in the market Wednesday was healthy. “The Russell is heading up and on the verge of breaking a downtrend, and the Transports actually participated today so there’s a lot of sectors supporting this recent move.”
The theme right now is that, while the market has acted well over the past two weeks, with little volume it doesn’t have the fuel to power through upper level resistance. Some market participants will need to come back from the Hamptons likely before that is able to occur, but in the meantime digestion and rest is healthy.
This morning, futures point to s slightly higher open after Chinese Premier Wen Jiabao said the country has further room to loosen monetary policy if need be. We find ourselves in an environment where economic conditions are deteriorating, but central banks stand at the ready to use policy tools to keep asset prices afloat. Investors are looking eagerly toward the Kansas City Fed’s Labor Day weekend Jackson Hole summit, which was the stage upon which Chairman Ben Bernanke announced plans for QEII in 2010
On the corporate front, Wal-Mart (WMT), it turns out, is mortal after all. The stock has been on a torrid run higher over the past three months, breaking out of a decades long channel, never closing below the 21-day moving average during the process. We have listed it for long trades several time in our Off the Charts newsletter, and it has rewarded both traders and investors. Last night, though, the discount retailer announced disappointing outlook for the third quarter and shares are suffering as a result. WMT is down nearly 3% in the pre-market.
Facebook (FB) will also be in the spotlight today as the lock-up expires that prevented certain insiders from selling stock they were allocated pre-IPO. Shares of Facebook are already down nearly 2% pre-market, but bouncing off morning lows. The much-maligned recent IPO has been sold on nearly every decent bounce since its inception.
Could the passing of this nerve-wracking event signal a tradeable short-term bottom for FB? We will see. Often when the herd is completely convinced a stock will move a certain way on news, it leads to a more potent move in the other direction. While the amateur trader or investor will panic in moments of uncertainty, experienced professionals know that uncertainty brings opportunity. We teach this type of calculated though-process in our Active Trading Courses.
On Bloomberg yesterday I did a segment on How to Trade Facebook Ahead of Lock-Up Expiration.
Cisco (CSCO) did not share the same fate as WMT and FB pre-market, with shares rising over 7% after reporting better than expected first quarter earnings results and raising its quarterly dividend by 75%.
Apple (AAPL) and Google (GOOG) have been great vehicles over the past few weeks, but have digested gains and pulled back slightly over the past two days. Both may need more rest before another leg higher, but both are higher pre-market and any strength they provide would be big for the market if we are to break and close above Tuesday’s high.
Disclosure: Scott Redler is long AAPL, AMZN, LNKD, POT, GE, and LEN and short SPY