S&P Reversal Back to Highs Leaves Technicians Scratching Their Heads

Today the S&P flummoxed traders who were betting on a correction following yesterday’s sell-off, erasing those gains and briefly making a new high. The index saw its first gap-and-go of the year to the downside yesterday and closed below its 8-day moving average, an indicator we look at for short-term composure. However, traders woke up this morning to a sizable gap up, and the rally continued during the session. The S&P finished the day up 1.04%, while the Nasdaq was even stronger, posting gains of 1.29% thanks to some promising signs from its biggest component.

Apple (NASDAQ:AAPL) finally woke up a bit today, helping the tech-heavy Nasdaq show relative strength, which has been rare over the past few months. AAPL opened higher with the market this morning, chopped around for the first half hour and then trended to the upside for the rest of the session on its way to a 3.52% gain. The stock still has a lot to prove after losing almost 40% over the last few months, and I will be taking the trade day by day until it re-proves itself. The line in the sand for longs now should be $452. When/if AAPL hits the beginning of the earnings gap at ~$465, I will evaluate my size and expectations for the trade.

The banks continue to lead the market and the key to most rallies we have seen recently. We have seen a bit of mini-rotation among socks in the sector. Prior to earnings season Bank of America (NYSE:BAC) was the big winner in the group, but Goldman Sachs (NYSE:GS) has been strongest since the company delivered a stellar earnings report. Today, Bank of America took the leadership role once again, surging 3.48%. GS still looks good too, making a new high today with a 1.99% gain.

Facebook (NASDAQ:FB) stopped the post-earnings bleeding today with a 1.89% gain. It was the same story with Amazon (NASDAQ:AMZN), which rebounded to the tune of 2.66%. Google (NASDAQ:GOOG) held above its 8-day moving average and still looks constructive. Netflix (NASDAQ:NFLX) tried to break out of its upper level flag early on, but ran out of momentum. With the stock up more than 70% since earnings, it may take some time before then next potent move higher.

On the bearish side of tech, IBM (NYSE:IBM) looks like it may want to enter its earnings gap. The stock showed relative weakness today, dropping 0.49%, and doesn’t seem to have any significant buying interest at these upper levels.

While we note the market’s impressive resilience today, it’s important to remain on your toes. When you start to get choppy-type action at highs, it can be a red flag. It remains hard to initiate new buys at these levels, but shorting has not paid off to this point. Right now the most prudent approach seems to be a very stock selective one.

By Evan Lazarus and John Darsie

Disclosure: Evan Lazarus is short IBM

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