The S&P recovered from this morning's lower open to eke out a small gain, providing a bit of a return to normalcy after three days of relatively manic action. I say "relatively" because the ranges in the market have been small this year, so I wouldn't exactly call it a roller coaster, but the market has left traders scratching their heads with its erratic price action recently. The S&P closed on its highs Friday, then suffered its worst loss of the year Monday as it closed below its 8-day MA for the first time, and then recouped those losses yesterday before gapping down this morning.
When you are actively trading, you always want to feel like you have an edge, and when you don't you should sit on your hands. When looking exclusively at the indices, there doesn't seem to be much of an edge right now. However, if you shrink the market down to just a collection of the most in-play names, I think there is room to make some headway.
A set-up we have been listing on Off the Charts and mentioned in today's Morning Call is the upper level flag in Netflix (NFLX). Some might be scared of buying the stock after its recent 70+% run since earnings, but the mechanics of the trade are such that we believed it could get another leg higher. The stock has a high float short percentage, meaning there are still a lot of trapped shorts at these levels that are yet to puke their stock. Yesterday NFLX looked like it might break above the flag, but the real break didn't come until today. NFLX finished the day up 5.75%.
Traders were watching Apple (AAPL) closely today, for better or worse, based on yesterday's rally. The stock finally showed some commitment to a bounce, the first time it has trended higher all-day since earnings and even leading up to earnings. With traders eyeing potential follow-through, AAPL drifted lower early in today's session before igniting at 10:40am ET. The stock went positive and briefly pierced the $465 level that marks the beginning of the earnings gap, but faded in the afternoon to finish with a doji candlestick. The jury remains out on AAPL and focus is best placed on other names.
There weren't a lot of actionable set-ups that played out today as the S&P 500 ETF (SPY) had an inside day. Banks continue to hold up well and are keying the market's resilience this year. If the banks ever start to materially weaken, it could be too much for the market to handle. However, there have been some signs of tech starting to perk up, so maybe we can continue to get that healthy sector rotation that defines bull markets. Google (GOOG), for one, continues to hand out near all-time highs.
Keep it light and let the market rest. The key to success as a trader is knowing when the conditions are right to be aggressive, and when the conditions dictate taking a step back. The adage goes that as a trader you would like to make 80% of your returns in 20% of the time. The other 80% of the year you should focus on not losing.
*DISCLOSURES: Scott Redler is long MGM, GOOG, BAC, FB, GLD, GE, SLV, ZNGA, DBC, TBT, SLV calls. Long LNKD call spread. Short SPY.