The markets had a the weekend to think about the implications of Friday's dismal jobs number, and right now it appears that bad news is good news because of the potential for longer-term QE. The Fed has made it clear it will continue to make asset purchases until the employment prong of its dual mandate markedly improves, and the jobs report clearly shows that we are not close to that point. Portugal will make deep spending cuts to comply with the EU rescue and there are worries that Slovenia will be the latest European nation to require aid, but overall the world markets have some green arrows. North Korea continues to saber-rattle with China telling them to "take it easy" over the weekend.
This week officially kicks off earnings season with aluminum giant Alcoa (AA) tonight, but most traders know it's really not that significant. The reports everyone will be watching come later this week with JP Morgan (JPM) and Wells Fargo (WFC). Fed Minutes also come out Wednesday, which could be of interest, especially for Gold (GLD).
The real question is, what now? The S&P hit a high of 1573 last week and then touched 1539 on Friday. That big gap down was met with buying, as most indices closed on the highs of the session Friday. The Bears will say we could now develop a right shoulder this week, which would then make 1538-1542 the defined neck line of that potential pattern. If this were the case, I would think the bears wouldn't want a close back above 1562ish, at least not for more than a day.
The Homebuilders (XHB), Transports (IYT), Financials (XLF), and small-cap Russell 2000 (IWM) all went lower before the S&P, and those sector ETFs were tradable longs from oversold levels after Friday's gap down. Now you need to see what type of bounce they get, and whether they get rejected on a re-test of the broken accelerated trend lines.
Below I listed some areas that need to be defended by the bears. Perhaps short-term traders could play a bounce up to them and then look to re-short those levels. If these levels are reclaimed, it would negate some of the power of the down move.
IWM: If the bears want to maintain control they shouldn't let the bulls reclaim $93ish.
IYT: If the bears want to maintain control they shouldn't let the bulls reclaim $108.50-109.
XHB: If the bears want to maintain control they shouldn't let the bulls reclaim $29.25-29.45.
XLF: If the bears want to maintain control they shouldn't let the bulls reclaim $18.20ish.
High beta tech continues to be a two-way street. Recently more money could have been made on the short side vs. the long side.
Apple (AAPL) has been very weak since failing to hold the 50-day MA a week or so ago around $458ish. On Friday it held $419, which is pivot support from March 4. It moved a few dollars into the close and is now up a few points this morning. The stock remains broken, and if it can't hold this gap up the next time it sees $419 that thread might not be as strong. We have about two weeks until earnings and this stock could trade in a range until then.
Google (GOOG) has had a stealth 65 point move lower since all the $1,000 price targets started rolling in. It sliced through its 50-day and is a bit damaged. Maybe it gets an oversold bounce back to the $796ish area.
Netflix (NFLX) broke its upper range after failing to break out and hold. The $162.23 level is the new pivot support and it has heavy resistance at $175-178.
LinkedIn (LNKD) got hit a bit, but in perspective it's holding up very well. This needs time to base.
Facebook (FB) had a decent move towards the end of last week following the Facebook Home event. It needs to hold $26.50ish to keep me interested. If FB can take out $27.80, that would be another nice obstacle to overcome.
eBay (EBAY) still acts well and should be okay as long as the market doesn't fall apart.
Yahoo! (YHOO) is not exciting but stair steps higher, still showing relative strength.
Sprint (NYSE:S) is not a barn burner but hasn't given us a reason to sell.
Retail is still acting better than the market.
Some pharmaceuticals names are also looking good.
Celgene (CELG) still hangs tough. Last time we had talked about CELG it was around $101, now it's trying to hold $115.
Onyx (ONXX) has a nice pattern, but it might need more time. It has an action area of $90-92.
Regeneron (REGN) broke out a week or so ago, now it needs to get above $188-190 for more action.
Alexion (ALXN) has a tight bull flag. Above $100.25 and it could get in motion.
Biogen (BIIB) is getting a little faulty, so take caution with this one.
Boeing (BA) still looks good and is hanging higher.
Dunkin' Donuts (DNKN) had a big day Friday. The stock still feels to me like it could be a long-term winner.
Metals woke up a bit after holding macro support once again. I'm not sure if the gold bugs are so excited about it. Let's see if it builds any momentum. GLD needs to hold higher around $151ish.
This week will be interesting as there will be a bit of tug of war between the bulls and bears. I'm on the cautious side, and am going to tactically approach the tape right now with a bit less risk.
*DISCLOSURES: Scott J. Redler is long XHB BAC GS FB S. Long SPY puts and short SPY.