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Will Yesterday's Weakness Lead to Further Downside?

Scott Redler

Futures off a bit this morning, giving some small downside follow-through to yesterday's weakness. If you have been watching the 8- and 21-day moving averages closely like I have, you saw some groups actually break and close below. The catalyst for some of yesterday's selling was a weak GDP reading before the open. The Fed, as expected, did nothing to change the status quo in its 2:15 ET rate

The questions are: will others follow suit and break their 8-day MA, and can we be a buyer at the 21-day or the 50day? At this point we don't know, but you could adjust your positions based on the price action by lightening up on longs and potentially adding to short hedges. We will measure support areas to see what levels hold, and where to potentially cover shorts and buy back. Some bears are out there saying we just saw the highs of the year, which I do not agree with at all.

The S&P 500 ETF (SPY) support zone is $149.35-149.55. The first time we see it, if it's today, I could look to cover my short overlay and see if there is anything worth buying. I will not be in a rush to press shorts or get excessively long, though. The area I would be more excited about buying back is $148ish, which would be a re-test of the S&P 1474 break out, as well as the 21-day moving average. We will see if that eventually plays out, but it pays to have a prudent plan in place.

In Facebook's (FB) earnings report last night there was a lot to "Like," but nothing to really love. The report was not enough, in the context of heightened expectations due to the recent run-up, to push the stock higher. After a run from below $18 to around $32 in a few months, that is not surprising. I did nibble last night in the $28 area after hours for a trade, but on a swing basis I think the stock needs time now. Holding the ~$28 after-hours low would be constructive now. I don't think Facebook has seen its highs of the year.

Fellow social networking stock LinkedIn (LNKD) has its earnings on February 7th. I will re-visit that a bit closer to the report, but I did fund a call spread when it peaked on Monday.

There were two notable strong reports last night from Qualcomm (QCOM) and Las Vegas Sands (LVS). For LVS, in order to get some follow-through today and not be a sell the news event, I believe the stock needs to hold the $54 area. QCOM is gapping above recent resistance, up about 5%. If they try to sell it after the open, then $65.50 is the support that needs to stay intact, in my opinion.

Apple (AAPL) will be interesting to watch to see if it can start to show a positive divergence amid any additional market weakness. For this stock to get more interesting from the long side, I believe it needs to hold $452ish. If it does show some relative strength and get some people interested down here, perhaps we see a nice trade develop from the long side through $462-465. If this area fails, then we could see AAPL remain heavy and out of play for swing traders.

Netflix (NFLX) is taking time to absorb its mammoth earnings move, but we are seeing nice two-way action for 5-7 points at a clip, which is welcomed by traders in what is a somewhat lethargic tape overall.

Banks did hold in best yesterday, let's see if the Financial Sector ETF (XLF) can hold above its 8-day MA again today. Goldman Sachs (GS) and Morgan Stanley (MS) were super strong yesterday as Wells Fargo (WFC) lags and Bank of America (BAC) and Citigroup (NYSE:C) still work on a new basing process.

Metals tried to act better yesterday but didn't have much power. If you are trying them long again, the Gold ETF (GLD) needs to hold $161.80-162 and then break and close above $164.40 with authority to become compelling.

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