The market was fairly quiet early, but is now falling through the lows of the day. The action early was very choppy, and the fact that many stocks could not even get a strong bounce was a bearish tell. Big cap tech was a mixed bag early after we expected the group to get a bounce, and has subsequently gotten hit as the market has started to come in.
Tech
Among the tech stocks Scott Redler of T3Live.com was watching early, Amazon.com, Inc. (AMZN) was tricky early but eventually worked its way higher for a quick trade. It has sine come off.
Baidu.com, Inc. (BIDU) was more straight-forward, surging off the open, flagging, and then breaking higher again. It has held up a bit better. The trade we highlighted this morning in Netflix, Inc. (NFLX) has been extremely choppy. The stock has been in the doghouse since squeezing shorts and topping out above $247, and at this level it’s still a battle between dip buyers and stubborn NFLX shorts. This is an important area short term for NFLX as it sits on lows of the day. Ahead of its iPad 2 conference, Apple Inc. (AAPL) broke above its early morning range but has since pulled off.
Rare Earth
The rare earth trade with Molycorp, Inc. (MCP) has been likewise frustrating for traders looking for a break above the $49.50-50.00 area. A large wedge, which is usually a continuation pattern, suggests the stock should see momentum on a break above that level. A measured move would send Molycorp up to the $80 range, but T3Live.com’s Marc Sperling will only look for a trade back to highs for MCP. The average analyst price target is $66, with the high end estimate from Dahlman & Rose at $85.We still like MCP long from here.
Banks
The banks made a feeble bounce early but have pulled off hard and looks set to test big support. Yesterday two separate news stories regarding JP Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) put another dark cloud over the sector. JPM announce that legal liabilities could exceed reserves by as much as $4.5 billion, and the SEC accused a former Goldman board member of tipping off Galleon Fund about various dealings.
GS in particular has formed a very bearish head and shoulders pattern dating back to late October 2010. If the market continues to come in, it could be a great candidate for a short. Watch how it acts around major support here at $160-161.
*DISCLOSURE: Scott is long GLD.
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