The market is becoming increasingly erratic at upper levels, as
(INDEXSP:.INX) saw its sharpest sell-off of the year on Monday, had
a snapback on Tuesday, and then gave back all its gains on
Wednesday. After Tuesday's bounce, traders were starting to throw
up their hands and assume we would rally back to highs like we have
done repeatedly so far this year, but yesterday's sell-off has
reinvigorated bears. Futures are slightly higher this morning, but
it will be interesting to see how the up open is treated.
Earnings season is in full gear this week, with some more major
names reporting today and tomorrow. Thursday's major earnings
Chipotle Mexican Grill
). Friday's major earnings reports include
American Electric Power
Faulty signals have grown louder this week with the dislocation in
the commodities markets and continued relative weakness from key
sectors like the
(NYSEARCA:IWM), and the
iShares Barclays 20+ Year Treasury Bond ETF
(NYSEARCA:TLT) has been trading in a steady uptrend and has
reclaimed the support of all key moving averages. The bond market's
strength is another concern for equity investors.
The intense sell-off of the
(NYSEARCA:GLD) after it broke below its major support level of
$148.50 shows that the Fed's actions are becoming incrementally
less effective, and worries of deflation are resurfacing again.
Economic growth is slowing significantly abroad, and it's starting
to happen here, too. GLD is up almost 2% pre-market. Watch Monday's
high to see if it can enter the gap.
Despite lower oil prices, there continues to be weakness in the
transports. Earlier this month, the sector saw three big down days
and was among the biggest losers on Monday, showing a
head-and-shoulders pattern. A break below the neckline at around
$104 could trigger another round of selling.
Several major banks reported what looked like solid earnings this
week, but have been sold off since.
(WFC) started off financials sector earnings on Friday, and despite
decent reports have been out of play since. JPM touched its 100-day
moving average on Wednesday, while WFC saw smaller losses but also
broke a key support levels at $36.55.
(GS) released seemingly solid earnings on Tuesday but was sold
right off the open on Wednesday. It broke below a descending
channel in place since February and breached below its 100-day
moving average, a move it hasn't done since August. The longer it
stays below this key moving average, the higher possibility we
could see lower prices in the coming sessions.
Bank of America
(BAC) sold off almost 5% after coming out with a decent earnings
report Wednesday, marking downside resolution to the intermediate
wedge pattern in place since March. Next major support level
standing at $11, which could be a better buyable spot.
The first-quarter profit for Morgan Stanley is higher than
expected, at $958 million. MS has been under pressure since a harsh
sell-off in February 20 and briefly touched its 100-day moving
average on Wednesday. The recent damage seems to be contained at
the $20.80 level, but its nearly two-month downtrend has stayed
(AAPL) broke below its key support level of $419 on Wednesday,
after holding the crucial level two previous times. It touched $398
and its next bigger support stands at $380. Two major Apple
(SNDK) -- are trading lower, which is further evidence that AAPL
could test deeper supports.
(NKE) held up well under pressure Wednesday yesterday and gained
0.66%. The stock has been in play since its powerful earnings gap
on March 22. The next breakout level is $61.38.
(CRM) traded in an ascending channel and formed what looked like a
bear flag. CRM announced its 4-for-1 stock split on Wednesday and
it goes into effect today.
(YUM) may also have a bear flag in place after its harsh sell-off
earlier this month. A break below its recent pivot low of $65.28
could trigger the next round of selling.
(LEN) has been the weakest-acting stock in the weakest sector, the
homebuilders. LEN has lost the support of most key moving averages.
A break below Wednesday's low of $37.39 could be the first stop on
a potential downside for LEN.
Another weak performer in the weak transports is
(UPS), which seems to be forming a rounding top. A key support
level for UPS is $81.79, and a break below this could send the
stock down to its 100-day MA.
(UNXL) was on fire Tuesday and Wednesday, amid an erratic market.
UNXL announced its secondary offering after the Wednesday close and
the stock traded lower by 7% to the $35 level. The previous
breakout level was $34.
(EBAY) fell more than 2% in after-hours trading as the company's
second-quarter earnings and sales forecasts were below Wall Street
analysts' expectation. The results for the first quarter were in
line with forecasts. EBAY can be seen as yet another example of how
inline reports are not enough with the market at all-time highs,
just as we've seen with banks.
(UNH) has been consolidating nicely above the powerful pro gap on
April 2, showing commitment. A move through $63.28 with volume
could help UNH to break above its all-time high of $64.61 from
Overall, trust your rules and process. If the market starts acting
violently erratic or indecisive and there are technical red flags,
at least be more cautious if you are not getting short on bounces
in certain stocks or sectors. The market has been resilient so far
this year, but don't trust a bounce blindly. Shorting is difficult
and hard to time on a day-to-day basis, but you can always hedge a
portfolio on a swing basis.