US stock futures are set to open lower Thursday, following Asian and European markets that slid overnight, although they are paring some overnight losses this morning. There were several catalysts for the drop in foreign markets: rising oil prices due to escalating violence in Libya, South Korea raising interest rates, Moody’s downgrade of Spain’s sovereign debt rating, and an unexpected trade deficit in China. With this morning’s weakness, most signs point to a downside resolution to the wedge pattern that has been building for the last twelve trading days. Check out the timeline of the wedge pattern.
The question now is whether traders can press this down open, or whether the market will be quiet for one more day before resolving. We have had our eyes on Friday as the day of ultimate resolution, with Saudi Arabia’s scheduled “Day of Rage” potentially providing the catalyst. However, thinks don’t always pan out according to plan. Another troubling sign in this market is that leading sectors are coming off the hardest, a sign that the easy momentum money may be being pulled away from traders. The semiconductor group, agricultural stocks and the tech sector as a whole is under-performing the market during this consolidation. Let’s take a look at this wedge pattern.
For more market and stock commentary, watch the T3Live.com Morning Call with Scott Redler below.
Semiconductor Sector Weak
With the market set to open lower, it’s important to identify some of the weak sector that you could potentially look to short. The semiconductor group is one that fits the bill. The sector is full of bearish patterns after a downgrade from Wells Fargo earlier in the week. Yesterday, the play of the day from T3Live.com’s Evan Lazarus was Cypress Semiconductor Corporation (CY) short, and the stock broke down through the neckline of its head and shoulders pattern. It should see more downside in the coming days, especially if the market comes in. There are also several ETFs that track the sector, including one with an appropriate symbol, the Semiconductor HOLDRs ETF (SMH). There is also the iShares PHLX SOX Semiconductor Index Fund (SOXX) and SPDR S&P Semiconductor ETF (XSD). If you are looking for a leveraged ETF to play, there is the Daily Semiconductor Bear 3x Shares (SOXS), which is only recommended for the experience and active trader.
Will Ags Hold Support?
A sector we have watched very closely over the past year has been the agricultural stocks, namely the top fertilizers in The Mosaic Company (MOS) and PotashCorp./Saskatchewan (POT). Yesterday a downgrade of both stocks added to already weak composure, and it appears like the complexion may have changed in this sector after a strong run. The final test perhaps will come today, at least for PotashCorp. The company produces 20% of the world’s potash supplies, a crucial fertilizer for farming otherwise non-arable land. The stock has lost more than 12% in the last week, and now sits precariously close to the intraday low put in back on February 20th. Dips have been buyable up to this point in the ags, so we will see whether POT can get back up off the mat, or throw in the towel. CF Industries Holdings, Inc. (CF) is in the same boat as POT, while Agrium, Inc. (AGU) and MOS sit further above their major support levels.
Is Rain Over in Amazon?
Amazon.com, Inc. (AMZN) has been one of the weakest among a faltering tech sector over the last few weeks, holding firmly in steep downtrend. Yesterday, the stock provided an outstanding 80-20 reversal entry as it traded quickly down through major support but then rallied to go positive. Marc Sperling was all over the trade in the T3Live.com Virtual Trading Floor yesterday. After buyers stepped back into this stock, it could get follow-through and break out of the downtrend today. Yesterday was the optimal entry, but if the market can hold up today AMZN is one stock that could see momentum come in to the long side.
*DISCLOSURE: Scott Redler is long AAPL, AMZN, LVS, MGM, BAC; Short SPY, SLV.
This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. Visit the T3Live Homepage, Virtual Trading Floor, and Learn More About Us.
