The market is becoming increasingly erratic at upper levels as today the S&P gave back all of the gains from yesterday's snap-back. Monday we saw the sharpest sell-off so far in 2013, but yesterday's bounce had traders once again throwing up their hands wondering if it was back to the melt-up we have seen so far this year. However, this time the rally was short-lived and the S&P looks poised to potentially break its 50-day moving average.
Although the market has been remarkably resilient since Congress infamously settled the fiscal cliff squabble, there is certainly no guarantee that will continue forever. As a trader, you have to trust your process and rules, and you can't simply ignore the red flags that have increasingly popped up the last few weeks. The faulty signals have grown louder this week with the dislocation in commodities markets and continued relative weakness from key sectors like the Transports (IYT), Russell 2000 (IWM), and Homebuilders (XHB).
When the market become violently indecisive, it can often be a precursor for lower prices, and I think that is what we are seeing. Anyone who has expressed that opinion so far this year has been made to look a fool, but I believe the signs are more compelling than they have been at any point during the past several months.
Apple (AAPL) finally took the plunge down through the $419 pivot support level, and briefly dipped below $400 for the first time since December 2011. Seven months ago it would have been hard to predict this type of demise for AAPL, but at each step of the way there were clues. What's next for AAPL after hitting this key psychological level?
The banks also look like they could be set to continue lower after most of the sector heavyweights reported earnings in the last several days. JP Morgan (JPM), Wells Fargo (WFC), and Goldman Sachs (GS) all delivered what looked like solid earnings reports, but the market sold them off the following session. Citigroup (NYSE:C) delivered a very strong report, and is also struggling to hold onto those gains. Bank of America (BAC) was a dog today on heavy volume after delivering a mediocre report, dropping 4.72%.
Make sure to tune in to tomorrow's Morning Call, where John Darsie and Brittany Umar will go over both stocks that could be setting up for compelling short entries, and stocks that are shrugging off market weakness and showing relative strength to the indices.
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*DISCLOSURES: Scott Redler is long BAC calls, short SPY.