Futures are down 5-7 handles with Europe in the news as usual. Most of the same themes exist: growth slowing vs. central planning/stimulus. When will Spain/Italy ask for funds? What types of budgets are they looking at? Can Greece finally conform? Will we see more pre-announcements as expectations for this earnings season are being lowered?
It’s been a big run since the June 4th low, and even bigger since since October 4th. The move has been supported multiple times by the 8/21 day moving average. On August 3rd the rally got a bit stronger and then on September 6th most shorts started getting taken out on stretchers as the rally accelerated. On September 13th Big Ben took the markets higher once again, bringing us to the most overbought levels we’ve seen this year on September 14th. At that point we were about +60 on the oscillators with screaming RSI readings, which is a good time to add some hedges and sell the exuberance.
As rallies progress you always need to measure the speed and the composure in order to manage positions. Last week the markets digested above the 8-day moving average but there were some flaws. The oil down move was much more potent with a small feeble bounce indicating lower prices to come. Plus the banks also acted weaker than some of the other sectors. On Friday, markets opened up and closed near the lows of the day. Another short term signal that markets needed more time to pullback/digest. Gold (GLD) opened up and basically closed near lows giving us a topping candle for short term traders to use as a “rest signal/sell signal”.
Today S&P’s are opening up below the 8-day moving average that stands at 1458, but well above the 21-day. Last Thursday’s low was S&P 1449. Under this and the next real level to test is 1438-1442. The 21day stands at 1431, and some bulls got a bit spoiled as most bears started to buy stocks, which always makes for a tricky trade.
Apple (AAPL) could see some volatility due to the FoxConn riots. Dealers had a successful pin at $700 for quad witching Friday. Here are some levels of support to watch as we wait for iPhone 5 weekend numbers: $693-$695 (this contains the 8-day), then bigger support at $685.50-$688, and then the 21-day MA is $678.
Google (GOOG) had a huge move since last earnings as Citi raises target to $850 (these guys are a little late). It could use a rest. The 8-day moving average is all the way down at $715. What a move!
Amazon (AMZN) put in an ugly candle Friday, and then was downgraded this morning. The 21-day stands at $252.
Baidu (BIDU) is not acting so well, it’s been an avoid for weeks.
LinkedIn (LNKD) is a little choppy up here. but looks good on macro level. Maybe we get a trade above $125ish
Facebook (FB) is providing us with many opportunities off recent lows with three buys so far. Buy areas were $18.50-19.40, and then $22.05. Can we get another through $23.40? It likely won’t happen today, as FB is down 5% pre-market after a Barron’s story put the company’s valuation at $15 per share.
Banks gave us clues for each direction.
Financial Sector SPDR ETF (XLF) was the first group to show toppy action on September 14, and then gave an ugly candle last Friday. It’s below the 8-day MA and can see its 21day that will move up to around $15.55-15.65.
Goldman Sachs (GS) started giving us two-ways clues over the past few weeks. On September 5th it lead the bank rally, and then on September 14th it led the retreat. It’s below the 8-day and I will see if this stock is buyable around the 21-day, which should move up to the $113-114 area.
JP Morgan (JPM) put in an ugly candle Friday, and the stock should be buyable closer to $39.50-40ish.
For United States Oil (USO) use $33.96 as the pivot. Next support under that that is $33.47 then $32.45.
Gold (GLD) put in an ugly candle Friday. Upper support stands at $170ish. Bigger, more important support will stand near $166.50-167.
Retail Sector ETF (RTH) is losing its 8-day. then the 21-day is $44.65.
Homebuilders (XHB) 8-day is $25.50, and then the 21-day is $24.41.
Down opens like this are where you salvage some trades and see if anything can go green. The trend since September has been to cover hedges/shorts into this type of open vs. pressing for a trend-down type day. We will see if that changes today. Lots of Bears are coming out and now saying the S&P 1474 is the high of the year. Right now that is an opinion. The same opinion that got them in trouble all Summer. Market action will dictate it for me. Gun-to-head, I would say 1474 is not the high of the year.
Disclosure: Scott Redler is long AAPL, FB, TGT, LNKD, STX, VMW, YELP, GRPN. Short SPY.