Major US indices closed in the green today, recovering a portion of yesterday's sell-off that was the sharpest since November. The Dow posted the biggest gain, surging 0.84% due largely to the strength in Home Depot (HD) after its earnings report. Strong housing and consumer data numbers this morning helped boost sentiment and distract investors from the looming sequester. Congressional testimony today from Fed Chairman Ben Bernanke today also came off as more dovish than the recent Fed minutes, which revealed the more hawkish leanings of several Fed governors. Gold, which sold off on those aforementioned Fed minutes, posted its biggest gain of the year in response -- (GLD) +1.22%.
The two-way action continued today. After opening higher the S&P very briefly went negative below yesterday's low of 1487 before bouncing into the close. When the market encounters turmoil, it's best to adopt a more cautious, short-term approach if you are actively trading. We talk often about using the prior day's high and low as pivots to trade against in these types of environments, and we got a perfect example of how to execute that strategy today. The low from yesterday of 1487 became a tactical counter-trend pivot when we traded below it and then back above it. The entry is on a break back above 1487 and stops are placed at today's low. The strategy didn't lead to an explosive move today, but simply a minor cash flow-type move into the close.
The macro trend remains to the upside, but on shorter time-frames the market has broken its 2013 uptrend and key short-term (8- and 21-day) moving averages. If the S&P fails to reclaim the 1509-1514 level over the next several sessions, our conviction will grow that deeper levels of support could be tested. The 50-day moving average, which coincides with a prior breakout level around 1470-1474, could act like a magnet for the S&P in the coming days.
Banks and Homebuilders were able to bounce after leading the market lower yesterday.
Goldman Sachs (GS) closed the day up 0.58%, but it didn't feel like traders were in a rush to buy the stock after yesterday's potent sell-off. To look at the bright side, the stock closed back above yesterday's low after briefly dipping below it this morning, potentially preventing another cascade lower. As long as worries about stability in Europe continue to re-emerge, GS could remain under pressure. Right now I think a flexible approach is best for GS, but it feels like deeper support levels could be tested before the next compelling swing long opportunity.
The Homebuilders showed early signs of strength today as they held above yesterday's lows and accelerated higher on the positive housing data. The Hombuilders ETF (XHB) closed the day up 2.97%. Although the XHB showed relative strength today, the XHB remains an avoid in this area, in my opinion. The ETF rallied back into its 50-day MA, so we will be watching if that area poses as any resistance tomorrow. If the XHB holds below $28-28.15 in the coming sessions, the greater conviction we will have that more downside could be in store.
The best-in-breed tech names are holding up relatively well, but remain choppy at upper levels.
Google (GOOG) closed below its 8-day moving average in today's session but pared most of the day's losses as it finished down a marginal 0.08%. Expect the action to remain choppy as the stock continues to trade around the 8-day moving average. Digestion is healthy in strong stocks during corrections, and could be the first names traders turn to when the market firms back up.
LinkedIn (LNKD) showed relative strength today as it finished up 1.10%. The upper level wedge continues to form as this stock absorbs the recent gains since earnings. A rest/pullback would be welcomed after the recent rally to allow some key moving averages to catch up to the current price. If the market continues its bounce from today's session, this could be one of the first stocks traders turn to for dip buys. Overall it's impressive to see LNKD bases above $154 during this market correction.
Relative Strength Plays:
Visa (NYSE:V) closed the day up 1.24% as the stock continues to trade on the top third of its yearly trading range. This stock holds up well as it bases above $154. Look for this descending triangle pattern to potentially break to the upside above $160.
Wal-Mart (WMT) is holding up well since earnings last week. It is now trading above its key moving averages after holding long-term support of $67. WMT is on the radar for a potential break of the descending trendline at $71.50-71.70.
Apple's (AAPL) investors conference is tomorrow.
After trending lower throughout the morning, Apple (AAPL) spiked higher around 2:00 PM ET as report hit the wires about a potential stock split. This stock needs a concrete catalyst and has a lot to prove as the trend remains to the downside. There is a micro downtrend that comes into play around 453-454 and the more macro downtrend comes into play around $458-460. It has been hard to add on strength lately in this stock but pay attention to the headlines from the company's annual meeting tomorrow.
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*DISCLOSURES: Evan Lazarus is short NFLX