Market Needs Rest After Strong Three-Day Bounce

T3 Live

Futures are basically flat this morning after a nice three-day rally by the markets. The EU starts its 22 Summit today and Germany is still trying to get the right structural system in place, rather than rushing the rescue process. Spain still hasn't officially asked for its bailout yet!

China GDP came in around 7.4% and there are headlines calling for a potential bottom there. If you look at the China Index ETF (FXI) a rally already started in early September.

It's a little over a month since we hit our September 14th highs on the S&P of 1474. When everyone was getting exuberant, we noted it was time to take caution, a concept we teach in detail in our Active Trading Course. Markets corrected about 3% or so thereafter, but if you zoom out a bit the pull-in was very tepid. Bears remain very frustrated and I think the Bulls might have wanted a bit more time before having to get back involved for additional action and gains. But you can't control what the market gives you.

S&P resistance stands at 1462-1463 and then the highs of 1470-1474. A close above this area and the next spot could be 1500+. If the market decides to flag around here, S&P upper support is 1453-1455, and then a big one that seems off the table for now: 1443-1448.

Banks continue to help lead the market.

Citigroup (NYSE:C) is an example why you should not be stubborn. This bank strengthened in the last month and then showed resilience when they reported earnings. Then traders tried pounding it again pre-market after CEO Vikram Pandit announced his resignation, but it turns out his departure has been seen as a positive. C is very extended from all of its moving averages. Use $38.48 as your pivot if you are looking to be tactical.

JP Morgan (JPM) couldn't push higher immediately after a pretty good earnings report, but it held in well which was constructive after a big rally. It's now at new move highs. The stock can work its way back towards $46ish.

Goldman Sachs (GS) is still trending and you can stay with this one to the long side as well. The prior high is $128.72.

Bank of America (BAC) reported earnings yesterday and is flat pre-market. I think after a few days you can look for a trade higher through $9.60-9.80ish for it to get back in motion for what could be a move to around $12 at some point in the coming months.

Below is my segment from Bloomberg from back in August where I stated my bullish case for the banks the rest of the year.

1. Redler: Banks Poised to Move in Fourth-Quarter: Video - Bloomberg

Homebuilders have been leading the way all year with lots of opportunities to get involved. The Homebuilders ETF (XHB) should make new highs first. Other symbols like PulteGroup (PHM), Lennar (LEN), KB Home (KBH), Ryland (RYL) all look good.

At the beginning of this year, both on our T3Live homepage and via Jim Cramer's CNBC show Mad Money, we talked about how a rally in the homebuilders could help trigger a rally in the markets. (Both links are below).

High Beta tech has been mixed with lots of two-way action.

Apple (AAPL) had a nice three-day move off the 100-day MA around $625ish and topped out near $650ish. Holding above $642-643 could keep some momentum there for a trade heading into the iPad mini event. Earnings for AAPL are on the 25th . Bank of Montreal (BMO) lowered its 3rd quarter targets.

Amazon (AMZN) had a decent bounce over the last few sessions. Nice Red Dog Reversal on 10/15 but it now has some resistance around $248-252.

Google (GOOG) had a nice bounce the last three sessions. In the bigger picture, it's been a nice macro move since last quarter's earnings. I will go over this later in the day closer to the announcement. I don't take stock into earnings, I trade it afterhours or the next day. Sometimes (rarely) I take options. Probably won't have any here tonight.

Baidu (BIDU) is inching up, and $115-116 will be decent resistance.

LinkedIn (LNKD) is not acting well since technical traders were likely being stopped out around $116. Let's revisit the stock after earnings.

The Oil Service Stocks (OIH) had some money rotate there. Some laggards are perking up in this market.

The precious metals Gold (GLD) and Silver (SLV) held important support Monday and seem out of play for now.

There are a group of laggard plays that are starting to look appealing for potential cash flow: Green Mountain Coffee Roasters (GMCR), Molycorp (MCP), Deckers (NASDAQ:DECK0 and Netflix (NFLX).

The 20+ Year Treasury Bond ETF (TLT) is starting to show continuation as well.

*DISCLOSURES: Scott Redler has no positions.

View Comments