The markets gave bulls a gut check this morning, but the indices held key levels to keep this fledgling rally intact. The S&P was down around 1% at 10am ET, but all major indices recovered to finish the day up 0.8%. The fiscal cliff negotiations continue to dictate the action. Encouraging comments from both House Speaker John Boehner and President Barack Obama, who stated he wants to have the negotiations wrapped up by Christmas rather than the December 31st deadline, helped trigger the intraday reversal.
SPY filled the gap from Black Friday early in the session, but held above its 38.2% Fibonacci retracement level of $138.82. The morning low was $139. SPY closed back at $141.48, above its 100-day moving average and above Friday's high. The oscillator went from +50 on Friday to neutral this morning, which turned out to be healthy digestive action.
The action over the next two days will be important for confirming this intraday reversal. The range to watch now is between 1385 and today's close. If we do get upside follow-through tomorrow, the next resistance level to watch will be the 50-day MA at around 1423.
Despite the market's resilience today, we continue to have very selective action. In this type of environment, its best not to cast a wide net, but rather focus on identifying relative strength on a short-term basis.
Yesterday, for example, I focused on Google (GOOG) as it woke up, and today it followed through to the upside.
Facebook (FB) matched the S&P today with a 0.8% gain, but held up very well in the morning during the market turmoil. After passing the test of the IPO lock-up expiration the stock has been on fire and has nearly closed the large earnings gap from late July.
Apple (AAPL) did not show relative strength today, falling 0.3%, but after its potent rally since the November 16th reversal the stock was due for a rest. The stock held the $572-574 level we talked about this morning but feels like it needs more time to get back in motion. I expect it to retest the 200-day MA, and we will check its temperature at that stage.
Amazon (AMZN) and eBay (EBAY) are acting well as we get into the holiday season. These "new wave" retailers have replaced the brick and mortar retailers at the top of the totem pole. The Retail Sector ETF (RTH) in general has been leading since the November 16th reversal, which makes sense surrounding Black Friday and the holiday season.
The precious metals Gold (GLD) and Silver (SLV) got hit hard overnight and now have someone broken charts. If you are trading them, I think it's best to stay on the sidelines until more clarity develops.
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*DISCLOSURES: Scott Redler is long GOOG, AAPL, QCOM, MA, FB, MGM, BAC. Short SPY.
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