Gold continued its free-fall Monday, suffering its biggest one-day loss ever, and the weakness spread to the equity markets as the S&P saw its largest decline in five months. The 2.3% loss in the S&P engulfed all of last week's bounce and put the market in short-term oversold territory. Both gold and stock futures are set for a healthy up open this morning, and it will be very interesting to see what it leads to. Will the market continue to be remarkably resilient in 2013, or are recent market dislocations a sign that the long-awaited deeper correction could be imminent?
After a lower open in the indices yesterday, stocks faded throughout the session, with selling intensifying after news of fatal explosions near the finish line of the Boston Marathon. The S&P 500 ETF (SPY) dropped below its 8- and 21-day moving average in one trading session, creating a big engulfing bar on the chart. The next support level to watch, if this gap up does not hold, is the 50-day at $154.06, which lines up with the gap from March 5.
Through sector analysis, you could see that all was not well under the hood of this market.
The Transports ETF (IYT) has long-since lost its leadership role and saw a harsh sell-off again yesterday. The IYT put in a big engulfing bar as the ETF retraced more than 4%. It is a red warning sign for the market to see this type of action in an important sector. The ETF came down to retest the neckline of the Head and Shoulders pattern that has been forming since January. A break below the neckline could bring our more sellers.
The Homebuilders (XHB) was the weakest of them all, shedding almost 5% yesterday and trading all the way down to its 100-day moving average following yesterday's weakness. It also looks poised to break the intermediate uptrend support since August 2012. A break below yesterday's low of $28.09 could take us down to the new year's gap at $27.12.
The Financials (XLF) tried to hold up early yesterday but followed the weakness in the market on its way to a 2.11% loss. The ETF was still positive just before 11am ET, but succumbed to the weakness in the broader market. The banks have kicked off their earnings season with solid earnings last week from JP Morgan (JPM) and Wells Fargo (WFC), but both stocks closed lower despite surpassing supposed consensus expectations. Yesterday we got a strong report from Citigroup (NYSE:C), but it couldn't hold pre-market gains as the market tumbled. Goldman Sachs (GS) was the latest bank to report this morning, and like the others delivered a good report but is only marginally higher pre-market.
Retail (RTH) has been leading the market up recently and yesterday showed relative strength with only a 1.68% decline, but also lost its 8-day moving average. Next support level is the 21-day at around $49.12
The sell-off in Gold (GLD) intensified over the weekend as GLD slipped another 8.8% yesterday. The major support level of $135 that we highlighted Friday was reached yesterday as GLD went as low as $131. The measured move of the recent macro range could take us down to $124-127 level, but Gold is bouncing this morning back to that $135 area.
Silver (SLV) dropped another 12.6% yesterday after also breaking major support Friday. If today's gap up doesn't hold, the next major support level is at $20.70 level from March 2008's pivot highs.
Keep an eye on stocks that are reporting earnings the rest of this week.
Yahoo! (YHOO) reports Q1 earnings after the close today with estimated EPS of $0.24 on revenue of $1.1B. The stock put in a new 52-week high at $24.99 level yesterday before pulling back into its 8-day moving average. Next support is sitting at the 21-day moving average at $23.45.
Intuitive Surgical (ISRG), which reports Thursday, is expected by analysts to book a profit of $3.99 a share during the first quarter, up from $3.50 a year ago. The company has enjoyed double-digit year-over-year percentage revenue growth for the past four quarters. The majority of analysts (78.6%) rate Intuitive Surgical as a buy. The stock saw a major sell off late February/ early March and just started to perk up again since March 18. It saw a nice breakout on April 11 which helped the stock to reclaim its 8- and 21-day moving average. The 200-day at around $520 marks the next level of resistance.
Microsoft (MSFT), which also reports Thursday after the close, is expecting $0.68 in EPS on $20.5 billion in revenues for expected year-over-year growth of 13% and 18%, respectively. The stock continued to show weakness after its big sell-off on Thursday last week due to a big decline in PC unit sales number, dropping below its 200-day. The next support level is sitting are at 50-day at $28.15, which lines up with the rising trend line since December 2012.
Apple (AAPL) Apple shed another 2.3% Monday and is teetering on the edge of pivot support at $419.. As the stock held this level twice previously, often the third time is the "charm" for a breakdown. A break below this level could bring us down to retest the support of $408, but the next major support level isn't until the $380s. Could AAPL provide a trade heading into earnings?
Google (GOOG) has been trading in an ascending channel and forming a bear flag pattern after its four-day sell off earlier this month. It failed to reclaim support of the 8-day moving average yesterday and a break below yesterday's low of $777 could bring out more sellers.
Las Vegas Sands (LVS) has been acting better but failed to build on to its recent gains as the stock slipped more than 4% yesterday. If it doesn't bounce off this key moving average today, we could see a further down move to retest the next support at $50.96 from the recent pivot low.
Facebook (FB) saw a break-down out of its ascending channel at around $27.25 and went as low as $26.36. Use yesterday's low as the new point of reference -£ next support is standing at $26.11.
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*DISCLOSURES: Scott Redler is long BAC, short SPY.