The market is trading sharply lower Monday after S&P cut its outlook for US debt to negative from stable, stating there was a one-in-three chances it would cut America’s AAA rating within two years. Futures, which were already pointing lower overnight, accelerated to the downside in pre-market and have continued during the session. Several important support levels have now been breached, with a weak earnings season so far providing nary a boost for stocks. Moody’s analysts differed in opinion from S&P, instead choosing this morning to reaffirm its positive outlook for US debt going forward.
There are healthy technical corrections and then there are troubling sell-offs in the market, and right now this appears to fall into the latter category. The warning from S&P could lead to greater urgency from Washington to cut debt levels and deficits. While perhaps such a development would be a positive step long-term for the country, stock markets do not respond well to austerity measures.
The news this morning was too much for Apple Inc. (AAPL), still a major index component, to absorb. AAPL plummeted down through major support at $326.26, finding some footing in the $320-321 area. The next level of support for AAPL is $318 then a major floor at $298-302.
Another former tech leader Google Inc. (GOOG) has seen big downside follow-through after a weak earnings report last week. The next big level is $480-490 for a possible macro stab long. Chinese Internet stocks SINA Corporation (SINA), Sohu.com, Inc. (SOHU) and Baidu.com, Inc. (BIDU) that had been leading the market over the past few weeks haven’t been able to withstand the onslaught either, but will continue to be an area to watch if the market can rebound from this news.
There were not many areas to hide this morning as the sell-off was widespread, but our ol’ favorite apparel stocks continue to be resilient. The strongest stock on our watchlist has been Lululemon Athletica, inc. (LULU), which has gone positive and is close to breaking out once again. For LULU to be positive in this extremely weak tape is very impressive, and a sign that it should see much higher prices in the near future. Also this morning Goldman Sachs Group Inc. (GS) reiterated its buy rating in LULU, raising its price target to $105 from $95.
Under Armour, Inc. (UA) has held the lower end of its upper consolidation, a positive sign. Although not quite as strong as its irrepressible yoga counterpart, UA should see higher prices if the market can find footing.
Another pocket of strength has been Chipotle Mexican Grill, Inc. (CMG), which is trading just slightly lower today. CMG was one of the strongest stocks last week after news it would open a Southeast Asian inspired Chipotle sibling called ShopHouse. Investors seem excited about the news and what it could mean for the future of CMG. Technically, the stock is holding today where it broke out from last week.
Silver and gold were set to open lower before the S&P news hit, and were extending sharply higher early. The iShares Silver Trust ETF (SLV) is now near flat for the day while the SPDR Gold Trust ETF (GLD) has been slightly stronger and remains positive.
Banks are still a big time drag with Citigroup Inc. (C)’s mediocre report this morning following a similar one from JP Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC) last week. On deck is Goldman Sachs Group Inc. (GS), set to report early tomorrow morning.
*DISCLOSURE: Scott Redler is long WEBM, POT, OIH, GLD. Short SLV.
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