After consolidating in a wedge pattern for more than two weeks, the market finally got some resolution this week. The break came to the downside, something investors might have thought unthinkable after a nearly three-month run starting in December when stocks could do no wrong. Much of the short trade was taken away overnight before Thursday’s session as a series of headlines pressured US stocks. However, after opening below support this morning upon news of the devastating earthquake in Japan, the market bounced back strongly Friday, engulfing Thursday’s session losses.
Going into next week, it’s difficult to lean heavily in either direction. The S&P still sits above its 50-day moving average, and the level that will be interesting to watch to the upside is 1308-1312. Bears will need to defend that area if they want to see more downside, says Scott Redler of T3Live.com. Given the resilient nature of this market over the last two years, it was prudent to cover shorts quickly and not get greedy.
For more market and stock commentary, watch T3Live.com’s Daily Recap video with Scott Redler below.
Tech
The tech sector, like the market, has been a mixed bag this week. Several oversold tech stocks were able to bounce today, and look like solid long candidates into next week also.
Apple Inc. (AAPL) was a great targeted long as it bounced off its 50-day moving average like clockwork once again. With concerns about Steve Jobs’ health shrinking after his appearance at the iPad 2 convention, AAPL looks like it can once again lead the market. AAPL should definitely be on the radar next week.
Baidu.com, Inc. (BIDU) has not performed as well over the last few weeks, but looks to have found its footing this week. While the market was under pressure, BIDU performed well, and has bounced strongly over the last two days. The Chinese search company looks like it could be come a go-to tech stock once more. (BIDU even added to today’s gain after we captured this chart)
Amazon.com, Inc. (AMZN) has been one of the weakest of the bunch, but we see an opportunity approaching to play this stock on a break of the downtrend. Entering on a break of downtrends can provide traders with great risk-reward scenarios, and the Amazon setup is a perfect example.
Silver Two-Way Action
On Monday Redler started to target a short trade in silver, believing the stock was over-extended and due for a sharp pull-in. After a monster run since breaking out to new highs above $30, silver had hardly taken a breath, and he believed there was outstanding risk-reward with a cute short. After holding up earlier in the week, silver got slammed pre-market Thursday and Friday. Redler covered his short at the beginning of today’s session after early strength, and flipped long on the trade as silver began filling the gap. Silver continues to show extreme resiliency and provide outstanding two way action for traders. Redler is also long gold.
Oil Service HOLDRs ETF Bounces Back
After getting slammed over the last week, the Oil Service HOLDRs ETF (OIH) also staged an impressive fight-back today, reversing after briefly dipping below its 50-day moving average. The fund engulfed yesterday’s session losses, and looks poised to continue higher.
This week we got a lesson in trading ranges. When approaching the market, you need to either have a very long-term vision, or a nimble short term strategy. When the environment allows it, yes, it is possible to make great multi-day or even multi-week swing trades, but when necessary you must get light and reduce risk. When a wedge pattern develops, it’s a time to get near flat and wait for more high percentage opportunities. Once resolution comes, then it’s time to use relative strength and weakness to identify the best plays. In this instance, we got a break to the downside, so we looked for stocks below their 50-day moving averages that looked broken. When the market found footing and started to bounce today, we looked for stocks that were holding above their 50-day moving averages.
At this stage, the easiest parts of the trade are over. The market was not able to see more downside despite a devastating earthquake, and now we are in a tricky area. Next week will be crucial to see whether the market can continue to bounce, or whether the bears will finally have a more sustained period of control. Stay tuned to T3Live and the Virtual Trading Floor to see how real professional traders are handling the action.
Lastly, we would like to extend our thoughts and well-wishes to the people in Japan. During this time of pain and hardship, we hope the world can unite to help Japan pick up the pieces.
*DISCLOSURE: Scott Redler is long AAPL, BAC, POT, GLD, 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.
