Can Bounce in Low-Beta Stocks, Nikkei Continue?

Scott Redler
June 4, 2013

There are some green arrows around the World as Europe is up about a percent across the board. Japan also bounced back 2% after it pulled off as much as 20% from highs of the year. We focused on the Japan ETF (EWJ) yesterday in the Virtual Trading Floor and I am long some overnight.

US futures have been quiet so far this morning and are near the flat line. Markets opened up a bit yesterday and then faded through Friday's lows, but found some footing and finished on the highs. The S&P briefly went below 1630, put in a low at 1622 and then came back above it (a micro Red Dog Reversal to make small adjustments). Perhaps bears were scared to be short heading into a Tuesday, a day that has produced 20 consecutive winning sessions. If the Bears want lower prices in coming sessions, they probably would want to defend 1646-1655. A close above this area might put them back on their heels.

Banks and some defensive names helped to lead us yesterday. The banks held their 21-day moving averages, and the defensive names that have been beaten up recently seem to have put in some short-term bottoms to trade against.

Due to their recent weakness I haven't covered many of these names recently in the Morning Call, but after yesterday's reversals they are worth watching.

Johnson & Johnson (JNJ) finally found some buyers at $83is, the prior breakout level from early April, after seven sessions of selling since May 22's topping tail. JNJ put in a small Red Dog Reversal at Friday's low of $84.18 and briefly broke above the 50-day. The stock closed on highs yesterday signaling some potential follow-through today. The first obstacles to the upside are the 8- and 21-day MA, which both sit at around $86.

Procter & Gamble (PG) also saw a Red Dog Reversal after it pulled back into its 100-day MA of $76.80, which coincided with a major support level. PG managed to finish the day up more than 1%, and yesterday could mark Day 1 of a potential bounce for this consumer staple.

Coca-Cola (KO) put in an outside reversal day at its 100-day moving average yesterday and saw some nice gains. The shares gained 2% as they saw a nice push into the close after grinding up for most of the session. Next resistance comes in at $41.50 from prior pivot lows and the 50-day.

Colgate-Palmolive (CL) has a similar chart pattern to the rest of these low-beta names as it also saw a nice Red Dog Reversal at the 100-day MA at around $57.69 that led to 1.3% of gains for the day. The next resistance area comes in at $59.50ish, which would mark a re-test of its 50-day moving average.

Kimberly Clark (KMB) also found its footing at the 100-day moving average around $96.19. Use yesterday's low of $95.51 as your new point of reference to trade against.

After the pullback we've seen in Japan I think it's time to take a look at some vehicles for exposure there. As mentioned, I did buy EWJ yesterday as a mean reversion-type trade.

The Japan Fund ETF (EWJ) saw a harsh sell-off since the Outside Day on May 22. It has come a long way from $12.43 to $10.55, and I wouldn't be surprised if we could see some type of quick bounce. The ETF entered its gap from the open yesterday at $10.66 and closed above it. The 100-day is standing at $10.75, and a break and close above this could bring in more buyers. Some resistance comes in around $11.20-11.40.

The Ultrashort Yen ETF (YCS) could also provide some opportunities after it found some support from its 50-day at $64.62, If it holds above the $66.15 resistance level from April, it could gounce. There is some resistance that comes into play at $66.90-68.

Toyota (TM), one of the stocks from my 2013 predictions, found some support at its 50-day, briefly breaking below this key moving average and then closing back above it. Yesterday's gap gets filled at $117.49, and a move above this level could confirm the validity of this oversold type of bounce. There is some resistance at $120.34.

Tech Remains mixed.

Google (GOOG) put a low in yesterday at $855 but still needs time. A break and close above $875 could help reinvigorate the stock.

Netflix (NFLX) still needs time. It's building a new upper range but is only really providing short-term trades at this point. Yesterday's low was $217.50.

Amazon (AMZN) is still having trouble getting above the $270-272 area. A break and close above that level could bring some technical traders back into the fold.

Apple (AAPL) held where it had to yesterday, now it would be constructive to see a sustainable move into the $455+ area. Friday's high was $457.

LinkedIn (LNKD) is still lethargic as it's absorbing a big macro move. If you are looking to enter long, try vs. yesterday's low of $160.93, but I'm not sure this stock is done selling off.

Yahoo! (YHOO) is still holding its 21-day and needs to get and stay above $26.50 for traders to look for some momentum.

Intel (INTC) is one we've highlighted many times this year starting when it cleared $22. Now it needs some time to hold above $24.83. I actually agree with Barron's--you could potentially throw this in the drawer for the next year or so and potentially see $30+.

Microsoft (MSFT) also holds in very well. The stock is starting to break out on the weekly and monthly charts and I might have to raise my year target of $37ish to $40+.

Metals had rare strength for an entire session, but have been very frustrating for shorter-term traders.

Gold (GLD) has support at $134ish and has pivot resistance around $137.11.

Tesla (TSLA) had some downside follow-through as it broke its upper support Friday around $102 after the outside day a few sessions prior at $110.75. Now you have new pivot support to trade against at $88.25.

Unipixel (UNXL) stock has been crushed, but it finally had a nice reversal. Above $17.10 and I think it might want to bounce back to $20-22.

The next day or so will be interesting. Can the bulls penetrate resistance and keep the 2013 composure intact? Or can the bears make a stand in the S&P 1650-1655 area in hopes of a bigger correction for June/July? Keep taking trades as there has been a lots of two action.

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