The market is starting to make traders a little bit dizzy as trades back and forth in an upper level range. Stocks held up late last week after Wednesday's outside reversal was followed by a big gap down the next morning. Yesterday, US traders were welcomed back to the market by a big gap up following Memorial Day, but stocks faded for most of the session to pare gains.
S&P futures are now down 10-12 handles this morning and set to test our thesis that an upper level wedge pattern could be building in the market. After a steep/resilient rally to start the year and then a "day to take notice" outside reversal last week, there are mixed signals that need to be worked out. The way the market deals with mixed signals is that it trades in a range, often one that gradually tightens over time into an apex that leads to a more sustained leg in one direction.
Last Wednesday the market put a high in at 1687, and yesterday the markets put a lower high in at 1674. Late last week the S&P held the 21-day MA down around 1635 and today it will be interesting to see if we can buy this down open. Perhaps we could create a higher low to start building that more defined wedge. I went home last night long BAC as my only position, but I have nibbled long on some SPY pre-market this morning.
This is the third time we've seen a wedge-type pattern form this year. I think traders are happy to be able to buy down opens, and sell up opens, rather than just trying to play a relentless melt-up like we've seen for much of the year.
Tech continues to be mixed with two-way opportunities.
Google (GOOG), which has been best in breed, bounced off its 21-day MA but faded at the end of the day. It needs time now. The recent pivot of $871 is your new point of reference.
Netflix (NFLX) gapped up but showed relative weakness early yesterday and some caught a nice short. The result was a pretty ugly engulfing candlestick. Perhaps we could now get tactical action both long and short around yesterday's low of $212.97. Bigger support is $204-206.
LinkedIn (LNKD) has been in the penalty box since last quarter's earnings. We got a sell signal on May 22, and since then it has been weak. Yesterday the $170.50 floor was broken, which could have triggered a cash flow short. Use yesterday's low of $167.06 as an action area, but bigger support doesn't come into play now until $157-159.
Apple (AAPL) couldn't hold $448 and created a pretty ugly short-term candle. Tim Cook did speak last night and suggested a few new tricks are up Apple's sleeve. Use $440.85 as potential two-way action area. If it can't hold $430 I believe many short-term traders will lose interest.
Cisco (CSCO) continues to hold its earnings gap and it seems like money has been hiding there. The longer it stays above $23, the stronger the pattern becomes.
Hewlett-Packard (HPQ) is also creating a high-level flag since earnings. The $24ish level is upper support. Above $24.95 perhaps you could get another trade.
Microsoft (MSFT) has gone from the doldrums to a "go-to" type stock, believe it or not. It's riding the 8-day moving average and still looks good.
Banks were stronger yesterday, see if that continues. If any groups were to go green today, this would be one to watch.
Goldman Sachs (GS) needs to hold yesterday's gap at $159.91; if it gets below this it could lose momentum.
Watch to see if JP Morgan (JPM) can hold yesterday's gap as well at $54.02.
Bank of America (BAC) filled its gap yesterday but still looks okay for longer-term upside. Short-term it needs time.
The Transports (IYT) showed relative weakness yesterday. Agriculture stocks (MOO) still continue to lag.
Tesla (TSLA) has been an animal for the past two months, squeezing shorts all the way into the triple digits. Most recently it flashed relative strength last Thursday and gave some tactical entries at $85.50 then $93-95, and yesterday it closed very strong. TSLA is hard to buy now, but also hard to short. Use yesterday's high 0f $110.75 as an action area.
The Inverse 20+ Year Treasury Bond ETF (TBT) was super strong (thus TLT super weak) yesterday, which could be foreshadowing a bigger move that could take place over the next 6-18 months. Those vehicles are hard to trade, but worth keeping an eye on to see if we do finally get that "great rotation."
Metals are frustrating for many. I do not think they are good day or even swing trading vehicles due to the macro forces at work. Gold (GLD) is holding onto this lower level or potential double bottom by a thread. Some will say you can trade it vs. $130.50, but it needs to get and stay above $135.50 in order to get more attention. GLD feels heavy to me overall.
At some point we will get another leg either higher or lower, but for now it makes sense that a range or wedge could build. So far this recent range is 3.5%ish wide. After an incredibly strong start to the year, this is a good spot to have flexibility and perhaps pare risk down as markets figure out if that pull-back enough or do if we need to get 5+% plus correction for the first time in 2013.
*DISCLOSURES: Scott Redler is long BAC, SPY.