The market saw a rare bout of heavy selling in 2013 yesterday as multiple faulty signals finally became too much for the indices to overcome. So far in 2013, any weakness has been very contained, with most down days being bought to keep the macro uptrend firmly intact. Lo and behold, futures were up seven handles when we walked in this morning, but are fading after jobless claims reached their highest levels in four months. Could we be headed for the familiar resilient scenario, or could you potentially look to fade this up open? The next few sessions should be very interesting.
We broke some accelerated trend lines and, in weaker sectors, broke intermediate-term support levels. Many have been yearning for some type of pull-in, but can you feel good about buying in aggressively on one day down? The real question is, will this time be different than the prior two sell-offs this year?
I am not excited about buying this dip, but rather on this up open I will look for some relatively weak stocks to fade. You do have to be wary of the scenario that played out in Japanese markets overnight. The Nikkei opened about 1.5% lower, and then squeezed shorts the rest of the day after the Bank of Japan announced a mammoth easing package. Those widow maker type scenarios are why we put stops in place when taking this type of short-term tactical approach.
I do feel that if the bears want to keep the pressure on, they should not let the bulls reclaim the S&P 1562-1564 level, especially on a closing basis. The level in the S&P 500 ETF (SPY) to potentially look to fade is $156.20-156.40.
The Russell 2000 (IWM), Transports (IYT), and Homebuilders (NYSEXHB) all helped to foreshadow yesterday's weakness. Each had potent down days on Monday, then followed through to the downside for two more. I was hoping for a down open on those sector ETFs to potentially buy for a tactical bounce today, but the up open sort of takes that away. Perhaps there will still be an entry, but I do feel the bigger trade will be trying to re-short some of the broken trend lines.
Below I listed some areas that need to be defended by the bears. If you are a short-term player, perhaps play a bounce up to these levels and then look to re-short. If these levels are are reclaimed, though, 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-$29.45.
If we open up and start to go negative today and can't reach these areas, then use yesterday's low as your action pivot for downside or a Red Dog reversal.
Metals have been in correction mode since peaking in October. Recently in February they broke to the downside, giving some intermediate trend followers an area to sell some or get short. Gold (GLD) was at $161 then. It tried bouncing off macro support the first time it touched it in February ($150.84), but is testing that area again and opening below it this morning. Yesterday, GLD closed below the March 20th low, which is another sell signal. The $148-150 area is macro support. A break and close below that level could ignite a move down to $135-140.
The headlines are starting to heat up around North Korea and the potential nuclear activity (a scary thought). The ECB left rates on hold, some were expecting a quarter point cut. The big news moving markets this morning though is that unprecedented $1.4 trillion stimulus package from the BoJ.
Yesterday IBD went to rally under pressure, meaning it is a time to be cautious and flexible as some technical signals are adding up to take some risk off. It doesn't mean "game over, but it means be flexible and measure the upcoming action a bit more closely.
Everyone will start making bold predictions, but I am much more flexible. I will measure levels and be tactical until I see more clarity. On a macro level, there is certainly no reason to be alarmed.
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*DISCLOSURES: Scott Redler is long BAC, S, FB. Short SPY.