Last week was a tug of war and when the dust settled, the market had suffered its first down week in more than two months since the September gap and go. The market was allowed to pull in 2+%, some very high level consolidations were breached and there was minor technical damage.
IBD put the big picture as “uptrend under pressureâ€. They say investors should take a more cautious stance, consider lightening up, and not let small profit spin down to a loss. I agree and started to get more cautious last week. A few things can happen this week. If the market holds this gap open today and then we get an accumulation day later this week, the market will be back in the uptrend and Friday’s low of 1194 will be the new pivot low. The S&P will need a daily close above 1210-1215 to relieve some short-term pressure.
If today is a small bounce with no traction, and we see market leaders start to break below their 21-day moving average that they held during the last pull-in, we could be in jeopardy of getting another distribution day. That would take the big picture into “market in correction.”
As of now, I think those that are panicking about this rally are just a little jumpy. The indices held their 21-day MA and we didn’t even retrace 25% of the entire move (from 1040-1227) that started in early August. The 25% retracement is around 1180, and a 38.2% retracement would also bring us to the 50 day, which is 1155-1160. We are still above both of those levels, so as of now this is just a normal pull-in during a nice market run. Traders should be very flexible so the market action can give us a clues on how we should trade/position ourselves into the December.
Apple Inc. (Nasdq:AAPL) volatility is picking up here but there is not calculated set-up. Watch to see if Apple holds its bigger upper range or starts to crack.
Baidu.com, Inc. (Nasdaq:BIDU) has been one of the stronger tech stocks, but also reversed after breaking out. Stay neutral on this one for now if you are a short term trader.
Google Inc. (Nasdaq:GOOG) is still holding its earnings gap although the upper ascending channel was breached. The gap still could be tested and the Google trade has changed somewhat.
Netflix, Inc. (Nasdaq:NFLX) is also holding its earnings gap but there is no traction either way. I think Netflix can go either way, it will depend heavily on the market.
Riverbed Technology, Inc. (Nasdaq:RVBD) is holding in fairly well, but like other tech stocks there is no clear pattern with Riverbed within this range.
SOHU.com, Inc. (Nasdaq:SOHU) is still holding its accelerated uptrend and the range is getting tighter. SOHU could be one to keep a close eye on as it has one of the more compelling set-ups in tech.
VMWare, Inc. (NYSE:VMW) is starting to act a little bit better after holding in its new lower range following the breakdown in cloud computing stocks. VMWare is no longer a market leader, but it’s back in the game.
Goldman Sachs Group Inc. (NYSE:GS) and Bank of America Corp (NYSE:BAC) are examples of a ‘have’ and ‘have not’ within the banking group, respectively, but neither is compelling today.
Wynn Resorts Limited (Nasdaq:WYNN) broke the upper range but it still above its 21-day moving average. Watch Friday’s low in Wynn.
Las Vegas Sands Corp (NYSE:LVS) has been a monster but finally got a pull-in last week that some were looking for. Las Vegas Sands will continue to move in its large ranges so there is opportunity to trade this stock this week.
MGM Resorts International (NYSE:MGM) is still holding its flag-type pattern, keeping it in the game for higher prices.
The rare earth stocks, Rare Earth Resources Ltd. (AMEX:REE) and Molycorp, Inc. (NYSE:MCP) could be in for some action as Molycorp reports earnings tonight. Earnings should provide a little more clarity to the group; the trade to this point has been entirely speculative.
Oil Service HOLDRs (ETF) (NYSE:OIH) could use some time to set up after a big move.
SPDR Gold Trust (ETF) (NYSE:GLD) is getting volatile with no real edge at this point. For now it is best to just trade against smaller levels, stay tuned to see if we get some clear direction in the near future.
There will be opportunities to make money in the coming days as the market figures out what the next level it will reach is. Volatility creates opportunity. I am coming into this week flat and will just take cash flow trades both long and short until the market proves to me which way I can take a longer term positions. The best set-up to me would would be to buy the 1180 area at some point this week and then see a resumption of the uptrend. We shall see if that plays out, but until then I will take trades short and quick.
