World markets followed US markets to the downside overnight with Europe broadly lower and the Nikkei standing out negatively in Asia with a 1.5% drop. The rhetoric surrounding Syria continues to be sharper and more tenuous. Russia, which has long supported President Assad, disputes the US claim that chemical weapons were used by his regime, and basically warned that there will be "catastrophic consequences" if the US and its allies attacked Syria.
The correction that started with the taper talk has intensified with this geo-political news. On Monday the afternoon sell-off provided traders some clues to at least take risk off, and yesterday we got one of the biggest sell-offs of the year. Oil is also perking up this morning and breaking out a tight channel, and will be an ongoing worry with tensions focused in the Middle East.
Today S&P futures are near the flat line. We danced around the 100-day MA yesterday and closed a bit below it for only the second time in 2013. Today's SPX pivot stands at 1629. The best set-up in my eyes would be a push below this, some acceleration downward and then a turn higher later in the day to create some type of level to trade against.
There is a cluster of support between 1601 and 1626. The June lows stand at 1560ish, which also is where the 200-day moving average currently lives. There is some resistance stands at 1637 then 1645 with a bigger area at 1653.
Many intermediate-term uptrends have been broken, and there have been many signs to take down risk well before yesterday. At this point, be purely tactical until we see a new signal that a new Day #1 bounce could be forming. Whatever stock or group you are trading I trade a level vs. a level for small paper cuts rather than risking a "gusher" by not using stops.
In today's Morning Call we will check the temperature and map out levels in various sectors.
The Homebuilders ETF (XHB) has been showing relative weakness over the last few months since the taper talk began, and it showed relative weakness again yesterday. XHB finished down 2.32% and looks like it could be close to triggering a bearish head and shoulders pattern. It's already below the 200-day.
The Financial Sector ETF (XLF) has shown concerning relative weakness, which led to a harsh sell-off yesterday. The XLF finished the day down 2.61% and closed well below its 100-day MA. It also broke down out of a steady uptrend that has been in place since the November 16th, 2012 market reversal, which is a concern for the sector and the broader market alike. Use yesterday's low as a pivot at $19.41.
The Russell 2000 ETF (IWM) played some downside catch up yesterday, dropping 2.41% after showing relative strength over the past week. It closed below the 50-day MA and is hanging onto its pivot from last Wednesday by a thread. The 100-day is $98.67.
The Retail ETF (RTH) also shed 1.5% yesterday to retest its 100-day at $52.76 as there has been lots of weakness in retails stocks. A break below this key moving average could lead to some downside action. Next support stands at $51.16, below that we have June's lows of $50.05.
We will also go over some levels in strong stocks that started to bend a bit yesterday. These are some of the names we may look to for bounces if we reach more extreme oversold levels or a Red Dog Reversal.
Apple (AAPL) experienced a sharp 2.86% sell-off yesterday, but is still above its 21-day MA, which will be the area to watch in the coming sessions. The $486 price point is yesterday's pivot low and $481 is a spot for potential action. We will be watching AAPL to see if it can find its footing leading up to the September 10th product event, which is expected to bring details of the newest iPhone.
Facebook (FB) active traders had another spot to take risk off at $40.60, then the stock went all the way down to $39.42 near the prior breakout level and the 8-day. FB could be a candidate to buy on a dip. One spot to watch for action would be $38.80-$39.30ish and then $38.49.
Tesla (TSLA) held up very well yesterday above $160.25 pivot and remains a go-to name.
Some weak tech stocks we have been mentioning as candidates for more downside:
Amazon (AMZN) has also been weak over the past month despite initially appearing to get another pass from Wall St after a weak earnings report. It had a break out failure, which is never a good thing. One level for high level stops was $295ish, then yesterday it had some downside follow through below $285ish from a bear flag type pattern. Next support is $278ish.
Google (GOOG) has shown relative weakness since it's mid-level outside day on August 6th around $905 then broke its uptrend at $885. It had some follow-through to the downside and closed right near the prior breakout level ($847ish) , and if it can't hold that level then it could have a date with the 200-day MA ($808).
International Business Machines (IBM) is one we talked about in my 2013 thesis as a potential candidate to break a steep multi-year uptrend. The market has started confirming that thesis since early June. Recently IBM has been on the short watchlistbelow $191ish. The stock hit a low of $182.50ish yesterday. I'd be careful here as the macro pattern continues to show signs of a breakdown.
Metals continue higher, buoyed yesterday by a flight to safety amid Syria anxiety.
Gold (GLD) continued its recent renaissance yesterday with a 0.94% gain and is up again this morning pre-market. We talked about playing the precious metals for a potential contrarian bounce in late June, but are not in love with the idea of new longs at these levels. Money is still on Fed tapering in September, when a loose schedule could be laid out for wrapping up the program in 2014. Such a development would rob Gold of its biggest bullish catalyst and likely trigger a sell-off, so I think caution is wise with GLD now.
Silver (SLV) saw a spirited move since the June 28th lows, and now it's almost $24ish. I'd use this spot to trim and trail.
The Inverse Bond ETF (TBT) couldn't hold the 21day for the first time since May. Use $76.33 as your actionable pivot, which is where the 50-day currently stands. If you sold strength around $81 or used high levels stops as the upper flag broke, this area could be a spot for you to buy small back.
We are almost 5% off S&P highs but not oversold enough to blindly buy. Look for potential reversal type set-ups, but keep risk down due to the potentially explosive geo-political environment. There has been some technical damage on charts but nothing extreme - yet. If you sold SPX 1698 or 1682 or 1666 (all three technical sell signals) you can embrace the volatility in front of us and find new areas to enter with a plan.
*DISCLOSURES: Scott J. Redler is long GLD puts.