World markets bounced overnight after supportive comments from the People's Bank of China regarding the liquidity crunch on the country's credit markets. Chinese markets were looking set for another day of heavy losses, but the new briefing from Ling Tao, the deputy director of the Shanghai branch of the PBOC, helped to get the Chinese index back to near the flat line.
European markets focused on the bounce-back in the Asian markets and are up 1-1.5% across the board. S&P futures also continue to drift higher into the open, currently up 8-10 handles. US markets had another volatile day yesterday. The Dow was down another 240ish points at the lows, bounced to almost go positive, and then faded into the closing bell to finish in the middle of the day's range.
When you have extreme volatility and a close toward the middle of the day's range, the result is something called a "doji candlestick." A doji is a candlestick of indecision, and at the very least can be expected to lead to a pause in the recent direction, which in this case was a sharp four-day sell-off. Buying stocks for quick snap-backs has been possible at key moments over the last couple weeks, but upside follow-through has been scant.
This morning obviously traders will be trying to make a judgement about whether they can buy this up open, or whether it's another dead-cat bounce in a market that is headed lower. At the very least, if you are a short-term trader I would give it 30-60 minutes before doing anything substantial.
If SPY can reclaim the 100-day MA around $158ish, the ETF might try to get into yesterday's gap that starts at $158.43 and gets filled at $159.07. There is some bigger resistance that comes into play closer to $160.25-160.96. Also keep in mind the possibility of window dressing into the end of the quarter. If the opening gap doesn't hold we have a new point of reference at $155.73 and then major support in the $153.55-154.16ish area.
In today's Morning Call we will go over some of the stocks that went green first yesterday and showed relative strength. We will also touch on some of the themes and stocks in our game plan.
Tesla (TSLA) rallied off its 21-day with a steady pace to close the day up 2% at $101.50. We highlighted TSLA very often lately as the stock continued to show lots of relative strength. The stock closed on highs, signaling potential upside follow-through the following day. Next resistance stands at the recent pivot high of $107.13, then $109.50 is the level to watch after that.
Microsoft (MSFT) found some support at the prior pivot low of $32.50ish and rallied 1.38% to close at $33.72 - back above its 50-day MA. The stock already erased most of its losses from last week's sell-off. Some continuation to the upside today could lift it back up above the 8- and 21-day MA at $34.20ish. If it does climb above that level, there could be some additional power added to the rally.
Netflix (NFLX) found some support at the $209 level and went positive in the afternoon after grinding higher for the whole session. The stock did give back some gains into the close to finish with small losses of 0.60% but it did hold the recent upper floor of $205ish. NFLX is now back above its 50-day. The longer it holds above yesterday's lows of $209ish, the higher probability it could regain some upside momentum. Next resistance sits at $220ish.
LinkedIn (LNKD) briefly breached its 100-day on Friday, opened below that on Monday and spent the whole morning below this key moving average at around $171.20 until it picked up some upside momentum around 2:00PM ET and penetrated through this resistance to close the day up 0.6% at $173. Look for continuation to the upside today as the stock closed on highs and looks poised to reclaim its 8- and 21-day MA for a move back to the 50-day at $177.55.
The 20+ Year Bond ETF (TLT) put in a new low at $107.76 below rallying 0.42% to close at $108.85. The ETF is still well below the bearish gap from Thursday, and very stretched from its 8- and 21-day MAs. Use yesterday's lows of $107.76 as the new point of reference to trade against as it could try to get a small bounce to $111-112 before potentially turning lower again.
Gold (GLD) still feels heavy after the recent breakdown at $130.50, but looks like it's trying to hold the new pivot low of $123.30ish. GLD is hanging by a thread at this level, and the longer it stays below Thursday's gap at $126.40, the higher probability it could see another leg lower toward next support at $119ish.
Silver (SLV) is also hanging by a thread at the new pivot low of $18.80ish. The chart still looks very bearish as SLV is below all key moving averages. A break below $18.80 could lead to another round of selling.
Goldman Sachs (GS) opened right below its 100-day, which added some more pressure to its recent sell-off until some buyers stepped in at $148.71 to help the stock close off of lows. However, GS couldn't regain the 100-day at the close, showing the bears are still in control. If it doesn't try to reclaim the 100-day at around $152 and the 50-day at $154ish in the next few sessions, we could see sellers step in again.
Yahoo! (YHOO) saw a big drop right off the open to send the stock all the way down to its 100-day at $23.88. Yahoo! finished the day down 4.45%. Active traders could use yesterday's lows of $23.88 as the new level of interest to trade against. YHOO stock could get a quick bounce at the 100-day as it's a bit oversold at this point.
First Solar (FSLR) has been to stair-stepping lower after breaking its support floor of $44. Recently it's been hanging by a thread at $40.46 and looks poised to make another leg lower once this new pivot low is broken. FSLR has lost the support of all key moving averages after the recent weakness. Next real support is the 100-day at $38.40.
eBay (EBAY) is another more bearish looking chart, as the stock has been grinding lower with an accelerated downtrend in place since May 17. A break below $49.50ish could bring in more sellers.
Again, this is a tricky spot to know whether to chase pre-market strength or fade the rally. If the S&P wants to rally in the next few sessions, we do have some room up to 1598-1606.
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*DISCLOSURES: Scott Redler is long SPY