The market has turned South during Monday’s session as concerns about the earthquake aftermath in Japan continue to weigh on world markets. The Japanese Nikkei finished down 6.2% as workers try to prevent complete meltdowns at three nuclear facilities. The S&P’s are comfortably below their 50-day moving average and breaking below Friday’s low of 1290-1292. The market is in a tricky area for traders, who are having a tough time being short, considering how much we’ve fallen. At the same time, we are less than 5% off the highs and the headlines remain dangerous, which makes it difficult to start piling into macro longs at these levels.
As the market comes off, it’s important to have support levels to watch. The first one we will be watching is the 1275-1280 area, which represents the 38.2 retracement area and a decent support level on the charts. Beyond that, there is very big support at the 1260 level.
Despite the faltering market, there are still some stocks holding in decent. We will be looking to identify relative strength in order to find stocks to play when the market does catch a bid. For the time being, keep it tight and there will be better opportunities to trade with more favorable risk-reward.
Semis Come Off After Early Strength
The semiconductor sector has been in focus due to its heavy exposure to Japan. Japan is a crucial link in the supply chain for the industry, and investors are grappling with how the earthquake will affect delivery of materials. Early on semiconductors got a lift, but have come off later in the morning trade. This is a sector to watch going forward for the next few weeks.
American Automakers
Another potential disruption in Japan could be with the automotive industry. Ford Motor Company (F) is a stock that has been in a downtrend since earnings on January 28, but could get a lift with the Japanese automakers under pressure. Ford, like the semis, was strong early but has tailed off back into its downtrend. We will continue to watch F for a definitive break out of the downtrend.
Solars Holding Up
The fallout from the nuclear crisis in Japan has slammed uranium stocks and boosted renewable energy companies, namely solar stocks. Most solar stocks gapped up around 10% this morning with the idea that countries will begin shying away from nuclear power. The solars have held up well during the session today, signalling that they could definitely have more upside. This is an interesting situation that is somewhat emotional, so we will watch it closely and tread carefully.
Again, the market is in a tricky spot right now where it’s hard to be aggressive in either direction. We will watch levels to the downside to start testing longs in relatively strong stocks, but will not get aggressive until the market starts to ask more healthy. Stay tuned to the T3Live Virtual Trading Floor to get the action as it happens in real-time from a team of experienced professional traders.
*DISCLOSURE: Scott Redler is long GLD, SLV.
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