US stock futures tumbled over the weekend amid more Middle East and North Africa unrest, with Wall Street set for a sharply lower open. Oil prices for the most actively traded April contracts have jumped nearly 10% from Friday’s settlement, as producers move to curb output from Libya, where long-time leader Col. Moammar Gadhafi is losing control of post and violently cracking down on protests. Adding to the negative composure to the market this weekend was a deadly earthquake in New Zealand and a decision by Moody’s Investment Service to cut Japan’s Aa2 credit rating.
Friday the market made new highs, but we wrote that something didn’t feel right. The action was heavy, many leading stocks and sectors sold off hard. Also, much of the market fluff, like rare earth stocks, got sold off sharply, hinting that some of the speculative money was also being pulled after another leg higher in the market. A gap down to start the week is foreign to investors in recent months, and it will be interesting to see how it’s handled.
An important level to watch for individual stocks is the 21-day moving average. At this point its the moving average game, seeing what stocks can hold those levels and which ones can’t get back above. Big cap tech leaders are still holding above, while the fertilizer names are holding below after Friday’s potent sell-off. The morning trade will be very important to see if leading stocks can start to fill their gap. Will investors choose to buy this dip believing the reaction to Mideast turmoil is overblown, or will they decide now is a good time to take more money off the table. Until the market proves otherwise, we will look to be buyers if the market acts well early, but we will not be overly aggressive until the market starts to re-prove itself.
Fear Trade Boosts Precious Metals
The fear trade is back on. Precious metals are getting a lift as investors look to hedge against future turmoil and unrest that shows no signs of abating. Silver is once again the leader of the group, with the iShares Silver Trust ETF (SLV) set to open at all-time highs again after a potent two-day breakout at the end of last week. Gold is also set to start the week with a healthy up open, while the SPDR Gold Trust ETF (GLD) still has room to get back to the highs.
Watch These Luxury Retailers
Friday’s action saw high beta momentum stocks get hit after a strong run, but many retail and staple stocks performed well to hold the market up. Two such stocks that acted well in the face of negative crosswinds were Tiffany & Company (TIF) and Coach Inc. (COH). These luxury retailers are never first on the list for momentum traders to watch, but can provide great cash flow when they set up with good technical patterns. Both Coach and Tiffany have formed bullish cup and handle patterns and look set to break out. The buy area on TIF is $65-66 and on COH is $58-59.
With the market pulling off hard, at this stage its hard to really recommend many specific longs or shorts. The morning trade will be very telling, so click over to the T3Live Virtual Trading Floor or come back around midday for our follow-up post. By that time we will hopefully have a clearer picture and more defined thesis.
*DISCLOSURE: Scott Redler is long GOOG, GLD; Short SPY.
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.
