US Futures Shrug Off Japan Sell-Off, then Rally on Nikkei Futures Bounce

Scott Redler
May 30, 2013

US stock futures now point to a higher open Thursday, but it's Japanese markets that are making all the headlines. Japan's Nikkei has been under intense pressure over the past two weeks. The index dropped 5.15% in the overnight session following a 7+% correction last Thursday. Although it is still up more than 30% for the YTD, last night's pullback made it a 14.75% correction from the highs.

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However, the narrative on Japan has done a virtual 180 in the last hour. Nikkei futures have surged more than 400 points in the last couple hours based on reports that Japanese pension funds may now be able to invest money into equity markets rather than just Japanese Government Bonds (JGB's). Last night's sell-off in Japan had little effect on foreign markets as US futures were narrowly negative, but US futures have reacted positively to the surge in Nikkei futures. It's shocking to see such extreme volatility such a large market as the Nikkei, but I guess that's part of the new normal.

There is plenty to talk about regarding world monetary and fiscal policies, but our focus is on what the price action is telling us. This upper level wedge pattern/pivot area continues to build as we are getting very nicely defined support and resistance. This range is about 3.3% wide from 1687 down to 1635. A break and close below the 1635 area could take us back to the 50-day moving average for the second time this year, which would still be a healthy 5% correction.

There are small signals pointing both ways right now. I do think from an intermediate-term time frame is better to be actively trading the next month or so without outsize risk on. Resistance is 1656 then 1674. Perhaps we could see one more lower high before this pattern truly tightens up into an apex.

The banks held in best during the past week or so. It will be interesting to see if this group can make higher highs while the market doesn't.

The Financial Sector ETF (XLF) held the 8-day while most other sectors tested the 21-day twice.

Goldman Sachs (GS) acts very well. It's above its 8-day and if it clears $164.50 it could go again.

JP Morgan (JPM) also acts very well. It's above $55ish and could extend.

Bank of America (BAC) could make a move to new highs if it can get above $13.55ish.

Tech is mixed, as usual.

Google (GOOG) triggered potential high level stops around $908ish as the upper flag broke. Now it's struggling to hold its 21-day MA. If it can't get back above $870ish with authority, it could see its 50-day or the prior high around $844.

Netflix (NFLX) is getting choppy after it flashed some warning signs when it broke below $235. Now it's just a trade and needs time.

LinkedIn (LNKD) flashed some weak signals when it broke $179ish then $170.50. Now it's a bit oversold and could try to bounce back to $174ish.

Facebook (FB) got a rare upgrade after being crushed since failing after last quarter's earnings. I moved on from the stock on May 3-4 when it failed around the $28 level. FB might be able to muster a bounce now back to $25ish.

Apple (AAPL) looks like it's trying to act better. The potential Inverted Head & Shoulders shoulders pattern would need get and stay above $450-452 to get it going again back to recent resistance around $465.

Amazon (AMZN) is still building a huge channel. If market hangs in, the next big pivot to buy would on a close be above $270ish.

Cisco (CSCO) and Hewlett-Packard (HPQ) continue to act well.

The solar group was upgraded by Goldman Sachs (GS) today after making a monster move in recent months. The timing of GS upgrades always leaves me... scratching my head.

First Solar (FSLR) went green first yesterday in a sea of red. It has some room to run but I wouldn't chase.

SolarCity (SCTY) continues to hold higher above its 8-day MA and is very impressive. The big action area resistance area is $52.50-52.75. The other names in the sector to watch are SPWR and JASO.

Tesla (TSLA) continues to have huge swings. Last week it showed relative strength and gave us some nice entries around $85.50 then $95ish. It opened higher yesterday around $114, but it was Day 4 of a big move to the upside and was hard to chase. Some caught a nice Red Dog Reversal around $110.75. Now TSLA could use some time. Use $99 as a pivot to trade both long and short around like we did back on 5/15. Mr. Musk is speaking today.

3-D Systems (DDD) is wedging after a nice run. Above $48 it could go again as this one has shown leadership.

Stratasys (SSYS) needs to get and stay above $89 to get more compelling.

ExOne (XONE) has been very impressive new issue this year. If it gets above $48 it could get momentum again.

Metals held their double bottom, and today we need to see if their gap up holds. The GLD put a double bottom in around $130.50ish, and now it needs to hold above $135.50 to show some commitment to this bounce.

The 20+ Year Treasury Bond ETF (TLT) is bouncing, but I think you could potentially look to re-short it around $116-117. The inverse bond ETF (TBT) could be buyable around $64.50-67.50 for a better move later this year.

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*DISCLOSURES: Scott Redler is long AAPL, AAPL call spread, BAC. Short SPY.