Markets got hit again yesterday taking the
(INDEXSP:.INX) about 4.6% off the highs of the year from May 22 of
1,687, which is the same day the index saw the major outside
reversal that has controlled the market ever since. World markets
quieted down a bit from recent volatility as European markets are
up small, while China and Japan are down 1% and 0.85%,
Today S&P futures are bouncing back six to eight handles as the
oscillator reached some oversold levels that make it tricky to be
short. Most traders would have liked to see a down open this
morning to trade the bounce, but the market never makes it easy.
What we will be watching now is how much power the bounce has.
Yesterday the S&P broke the 1,622 pivot low, now let's see if
that turns into resistance. The bigger area to watch is 1,635,
which is also the area where the 8- and 21-day moving averages are
If this up open gets sold off early, use yesterday's low of 1,607
as your action pivot. The next level to watch would be the 50-day
moving average, which stands at 1,604. I would love to see a "Red
Dog Reversal"-type setup show its face today, which means they
would sell this up open down through yesterday's low, and then the
market would rally back up through that level. On that hypothetical
trade, you enter on a break back above 1,607, and place your stops
at the low of the day for a nice calculated entry.
The last two times in 2013 that we have seen this type of
volatility, there were rolling corrections in sectors under the
surface, but the S&P held up better and never corrected 5% off
highs. During those pullbacks some other groups were down 5-12% and
hit their 100- or 200-day MAs. Pullbacks provide a great
opportunity to identify relative strength, which reveals the real
quality in the market. When the market finds its footing, you could
have success turning to those sectors and stocks first.
Yesterday was a decent day to cover some shorts; now the question
is, from the long-side do we take a purely short-term tactical
approach, or could we put on new swing-type trades? I think you
start out by employing some day-and-a-half-type strategies and
watch to see the composure of the bounce. After initial bounces, if
they happen, you could take off a portion of the position and then
hold some for a bigger move.
In each sector, use yesterday's low as the action pivot and make
adjustments around them. I tried to list them from strongest to
weakest. If you are looking to short through yesterday's lows, take
a bit of care as we are oversold. I would wait to see if they
bounce back above for a tactical long.
S&P 500 (NYSEARCA:SPY): Yesterday's low is $161.13 (50-day at
Financials (NYSEARCA:XLF): Yesterday's low is $19.28 (50-day at
Industrials (NYSEARCA:XLI): Yesterday's low is $42.66 (50-day at
Retail (NYSEARCA:RTH): Yesterday's low is $51.29 (50-day at
Transports (NYSEARCA:IYT): Yesterday's low is $109.35 (already
below the 50-day, the 100-day is $108.39).
Homebuilders (NYSEARCA:XHB): Yesterday's low is $29.48 (already
below the 50-day, hit 100-day yesterday, the 200-day at $27.53).
Real Estate (NYSEARCA:IYR): Already at 200-day, use $67.21 for
Tech remains mixed with opportunities.
) is struggling to hold this area. Use $440 as a stop. If it gets
back above $450 it could look better.
) has a really nice pattern. If the market finds footing, a buyable
spot could be $272-275.
) range is getting tighter. A move above $228ish could provide a
good tactical long, but below $218 you could perhaps short.
) has been correcting since breaking $900 area, now it's struggling
to hold on to $854. Use that level as support, and under that a big
zone is $844-836. If we get some type of bounce, a GOOG move above
$870 would have it looking much better.
) showed relative strength again and continues to be a great
trading vehicle. Micro resistance is $98ish then bigger resistance
is $102. Support sits at $88.25.
(SCTY) had a nice "Red Dog Reversal" at $36.50 after recent
weakness. If it gets above $40ish, the next resistance is $42.
Remember the big IPO lockup expiration is next week, but the stock
has already come down a lot.
Metals still hang around but the range is getting tighter. Gold
(NYSEARCA:GLD) could provide a cash flow trade if it gets a move
higher through $136.60-137.20, but these moves sometimes happen
quick and then fail so take care. Support is $134 then $130.50.