Japanese markets sold off hard once again last night due to an underwhelming speech from Abe, as yesterday's reflex bounce in the Nikkei was short-lived. The index had been extremely strong this year due to the promise of bold structural reforms by the Japanese leader, but it is now 19% off highs of the year. A 20% correction is considered bear market territory.
World markets have mostly followed Japan lower overnight, with Europe down around one percent across the board. S&P futures are down around eight handles as we are getting some of the most consistent selling of 2013 to-date.
Yesterday the Bears stepped up where they "had to" in order to contain the morning bounce and snap the market;s 20-session Tuesday win streak. The S&P retested the apex of the wedge pattern that resolved to the downside on Friday around 1646. The question for today is, can traders press shorts through recent two-day support around 1622 for downside follow-through towards the 50day that sits around 1603ish?
Most sectors are all on the decline, some weaker than others as it's prudent right now to map out the 50-day and 200-day moving averages across the board for potential spots to cover some shorts, or look for action area bounce spots. Those are the levels we will go over it in today's Morning Call.
Retail (RTH) broke below its 21-day last Friday for for the first time since April 8. The ETF is forming a rounded top, which is typically a bearish pattern. A break below Monday's low of $51.20 could lead us to the 50-day at $50.88. Financials (XLF) have been leading the market up for the past month, but the ETF is also showing some signs of exhaustion. Yesterday it retraced lower during most of the trading session to close the day down 1%. The 21-day at $19.60 could be the last line of defense for the bulls, as a break and close below this could open the door for lower prices. The 50-day stands at $18.88. Transports (IYT) have been showing weakness since May 22 as the ETF put in a lower high on May 28. IYT has been grinding lower, but on Monday found some support at its 50-day at around $110.90. The downward bias remains in control as it saw another red day yesterday. A break below Monday's low could take us to the 100-day at $108.29. The Homebuilders (XHB) have shown relative weakness and the ETF is already below its 50-day as the 100-day has been acting like a magnet. During the market's pull back in November 2012, then February and April this year, XHB held its 100-day. Will it hold this time? Utilities (XLU) have been one of the weakest sectors of late due to rising bond yields. The XLU is already below its 100-day and has almost reached its 200-day coming in at $37.13. The selling intensified when the ETF broke below its rising 50-day, and now the 200-day could be the last line of defense for the bulls.
High beta tech was sluggish yesterday as many stocks are seeing composure weaken.
Apple (AAPL) has been grinding higher in an ascending range. The stock couldn't find momentum above $454.50 yesterday and retraced 0.31% lower to close right in front of its 100-day. There is a some news it lost a patent case to Samsung, which will result in some restrictions selling the iPhone overseas. It will be interesting to see if it can go positive today in a sea of red.
Google (GOOG) briefly broke below Monday's low of $855 as sellers stepped in aggressively in the afternoon. This stock has been grinding lower since breaking its upper range around $900. A break below yesterday's low of $854 could lead us down to a buy action area that stands at the prior pivot of $844 down to the 50-day of $835.
LinkedIn (LNKD) had an inside day yesterday as the stock is trying to hold the most current pivot low of $160.93. However, the stock looks weak with a downtrend in place since May 21. Traders could have used $180ish as high level stop. A break below Monday's lows could send it down to the next support level of $155ish, a spot to perhaps look for long opportunities.
Netflix (NFLX) held above Monday's lows but the stock continued to get pressure from its short-term downtrend that has been in place since May 16. It's building an upper wedge that could resolve to the downside if it doesn't hold $217 micro support. Next major support is sitting at $204.53.
Amazon (AMZN) couldn't find any upside traction above $270-272 as the stock put in another red candle yesterday. It's trying to hold the 50-day at $263. A break below this key moving average could take us down to the 200-day at around $256.
eBay (EBAY) broke below the intermediate uptrend support that has been in place since December 2011 with a 1.5% of loss yesterday. If it doesn't reclaim $53-54 area, we could see lower prices in the coming sessions. Interest rates continue to grind higher before the Fed even takes any action. Words have become a powerful thing.
The Inverse 20+ Year Bond ETF (TBT) has been trading in a lower range for the past year. Recently it saw a nice rally when it bounced off the range's bottom at $58.23 and has been holding above its 8-day. A break above $69.70 could lead to a major breakout. The regular 20+ Year Bond ETF (TLT) on the other hand, has obviously been bleeding lower. Last Friday it broke below its key support of $114.62. Look for downside follow-through as the next real support is all the way down at $110.
Tesla (TSLA) bounced a bit yesterday and now needs some time. There could be a micro trade through $97.62 back to $101-102. It does have support now at $88.25 to trade against.
Solar City (SCTY) has been crushed since failing around $52 and then breaching the upper area around $46. Now it's down to $37ish. Use $36.50 as a pivot that could be a spot for a Red Dog Reversal. They do have IPO lock-up expiration on June 11, which could be the cause of some of the pressure.
Metals are a bit lethargic but still grinding higher a bit. Gold (GLD) has a double bottom that is still sticking, but it's very random and not really worth a traders time. Micro support is $134 then major support is $130.50. Resistance is $137ish.
Today should be interesting as we have a lot of economic data and then the big jobs report Friday. I would love a break below recent support so I can manage my put spread and cover my SPY around $161 and then look for opportunity on the other side.
I'm not in the camp that we see a 15-20% correction. Let's see how we treat the 50-day MA first then evaluate composure from there.
*DISCLOSURES: Scott Redler is long BAC, EWJ, AAPL call spread. Short SPY, long SPY put spread.