By: Scott Redler
The market is pausing in an area worth trying for a small oversold bounce–1,080-1,085 on the S&P was the compelling spot to watch. We are here, but the market remains erratic and hard to trust. Take a look at my updated S&P chart posted yesterday.
Goldman Sachs (GS), JP Morgan (JPM) and the banks were a part of the reason that the markets could not sustain its upmove over the past few days. Both GS and JPM trader through key support levels late in yesterday’s trade. When GS reported, we highlighted the negative bearish head and shoulders top. Sure enough, the stock broke both its neckline and 200 day moving average. Take a look at my marked up GS chart from yesterday–this $150-152 level could be worth a shot for a short-term bounce. This area is the key support/breakout level from July 15th.
I will be looking for some type of RedDog Reversal today in GS using yesterday’s low of $150.70 as a level. If the market tries to push it towards those lows, you can nibble in front of that area with a TIGHT STOP, just in case it can’t break it. Should GS break yesterday’s low, stop at the $149.50 area and trade back through $150.70, then you can buy it with a stop at today’s low and see if a bounce finally shapes up. This is the strategy to use when you want a calculated bounce in a very oversold scenario (you can’t just keep buying and buying and averaging down–that’s how you blow up!). You can use this same strategy in the other banks–JPM and BAC in particular.
If Goldman never turns back up, we will try again another day. The macro pattern actually tells me we should see $135ish in the coming months.
The Rundown:
- I will also be looking for potential RedDog reversals in U.S. Steel (X)–which has been CRUSHED lately, and for Freeport McMoran (FCX). Both are very oversold. That does not mean a bounce will happen just yet, but it’s worth putting on the radar.
- It seems like Google (GOOG) is trying to hammer out short-term support in this area. You can trade it long against the $535 level. Research in Motion (RIMM) had a small reversal yesterday and could continue higher. Amazon (AMZN) has earnings out tomorrow. It’s been very erratic and was a great long yesterday, but then got weak. This morning it was again upgraded and is up $2 plus points.
- VMWare (VMW) had great earnings and a huge gap, but no trading action during the day. It needs some time to digest that large move. Watch yesterday’s low for some opportunity. This reminds me of Cree (CREE) just a few days ago after its earnings report. Look at both charts and you can see some of the similarities shaping up.
- SanDisk (SNDK) is consolidating up in the $30 area. With earnings out Thursday, my gut tells me they will be good and we could get a big gap up. If you want to make a play on this, I would do so with options, not with the stock. You can better quantify your risk with options than with equities when dealing with a stock like SNDK.
- This morning, Caterpillar’s (CAT) earnings were soft and it’s down $2+ points. $54 is a big level, with a lot of air below. Watch price action this morning around that area. Boeing (BA) also had soft earnings, but it’s trading up nearly $2.
There are lots of headlines today:
- Geithner is on the hill.
- The Fed’s announcement will come at 2:15.
- The highly anticipated tablet announcement is due out from Apple (AAPL), which had a very erratic day on HUGE volume following their earnings report. This is generally a sign of a minor correction coming soon.
- The State of the Union is tonight.
With so much news on the horizon, trade accordingly and patiently await opportunities.
