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Off the Charts: January 31, 2013 - with Q&A Daily Recap Video

Evan Lazarus

Thursday, January 31st 2013

Yesterday we talked about some faulty technical signals that were developing in the market, but despite small losses in the indices again today the damage so far has been very contained. The S&P closed the day 0.26%, basically right at its 8-day moving average. The Russell 200 ETF (IWM) was able to show a positive divergence today, surging 0.69% after breaking down below its 8-day MA yesterday.

This is a tricky spot in the market as we close out a very strong January and head into February, which is historically a weaker month for the stock market. The first day of the month falls on a Friday, so we will get right into the economic data tomorrow with the non-farm payrolls and unemployment numbers. Right now it's hard to enter new longs after a fast start to the year, but we also have not gotten any downside follow-through.

All we go off right now is the price action, which has been decidedly bullish. The January rally has been supported by the 8-day moving average each step of the way, and today is the first time in a while that the S&P has even closed at its 8-day moving average. Many traders are anticipating a pullback, but that doesn't mean we have to see one. Some of the strongest bull markets remain overbought for long periods of time and don't allow traders an easy way in.

In addition to the jobs report tomorrow morning, there is the Michigan Sentiment number at 9:55 AM ET, followed by the ISM Index five minutes later.

High Beta Tech

Apple (AAPL) severely underperformed the market this month and the selling pressure only intensified after a disappointing earnings report. As we've stated many times before, this is a broken stock that has a lot to prove before it warrants swing long consideration. For active traders, you have a few new points of reference as AAPL tries to find a higher low in this new lower range. The longer AAPL holds above $452, the more confident I am that it could trade into the earnings gap at $465. A break below $452 could trigger further downside, though. At this point, there are better stocks and more compelling set-ups to take advantage of.

Google (GOOG) continues to hold up well since reporting earnings on January 22nd. This stock continues to consolidate above the $749 level as it trades within the top third of its yearly trading range. A close above $760 opens the doors for a move above last year's high of $774.38.

Netflix (NFLX) has seen a large run up in price after its earnings report this quarter. The stock has gained over 60% in a very short amount of time so it will need time to absorb the recent move, in my opinion, before it can successfully make another leg higher.

Notable earnings play for the day

Facebook (FB) gapped lower this morning despite beating earnings expectations. The recent rally in FB had set high expectations for earnings that were ostensibly not met based on the after-hours sell-off. However, the stock saw an impressive rally off of lows and briefly went positive early in today's session. All-in-all, FB continues to show commitment to its recent strength since rallying off from a low of $17.55. There are a series of higher lows in place and it would be healthy to see FB base above $29.50 before attempting to trade above $32.50.

Las Vegas Sands (LVS) rallied over 7% today to close the day on its highs after beating on earnings last night. This stock rallied above the prior high pivot of $54, and now it would be bullish to see it hold above that $54 level going forward. Use today's high of $55.37 as your new short-term point of reference.

The Financials continue to hold at highs. Look to this group as a potential leading indicator for the market.

Morgan Stanley (MS) is consolidating at highs as it holds onto its 8-day moving average. This stock has seen a nice rally higher since we listed it as a potential buy at $18 in December. At this point, MS looks like it could break out above $23, but does it have enough power to sustain a breakout?

*DISCLOSURES: Scott Redler is long FB, BAC, AAPL, DELL, DBC, GE, TBT, WMT. Long LNKD call spread. Short SPY.