Need Help?  

1-888-998-3548

The Bull Trap Turns Into a Bear Trap

Scott Redler and John Darsie
Feb 5, 2013, 8:43 AM

 

S&P futures are 7-8 handles higher this morning following the biggest sell-off of the year yesterday. Friday the index closed on highs, and then yesterday it closed below its 8-day moving average for the first time in 2013, the type of reversal traders often refer to as a "bull trap." A close below the 8-day MA can signal a short-term composure change and lead to a pullback, but the misdirection continues this morning with the large gap up. After a strong January traders were perhaps looking for a bit of a pause in historically weaker February, but based on today's pre-market action the melt-up could continue.

 

The gap down in the S&P 500 ETF (NYSE:SPY) from yesterday starts at around $150.60ish, then next resistance is the pivot high zone between $151.26-$151.42. Support, based on this open, stands at $150.11 then $149.43.

 

I certainly did not start loading up long into yesterday's close, so today will be a bit tricky for me. I will likely sit on my hands in the early going and wait for the market to build a more a calculated pattern over the next few days. This market is proving that there is a firm bid underneath the surface, but the day you start getting sloppy and giving things too much room could be the day we end up getting a more significant pullback. In my opinion, though, I believe we could test highs of S&P 1552-1576 and then take them out over time. We could get more of this choppy type action on the way there.

 

There continues to be a lot of very stock specific action with not much continuity in the price action at this stage. Tech remains very mixed.

 

Netflix (NASDAQ:NFLX) has been acting best since earnings. The stock was super strong yesterday, and the next pivot is to clear $175-177ish.

 

Amazon (NASDAQ:AMZN) rejected the $284 level post-earnings and has been slipping ever since. Now the stock is near big support at $258ish.

 

Apple (NASDAQ:AAPL) remains under pressure and there still is no commitment to any of the small rallies we have seen since earnings. I will not look to buy it aggressively at all until we see a more compelling reversal signal. The levels to watch are yesterday's low of $442 and then the earnings pivot low of $435. Resistance now is $448.25-452.

 

Google (NASDAQ:GOOG) was downgraded yesterday and again today after making new all-time highs on Friday. Let's see if it can hold yesterday’s low of $758.20ish.

 

Baidu (NASDAQ:BIDU) came in light on earnings and is down a few dollars this morning. Let's see how it handles the $100-$102 area.

 

VMware (NYSE:VMW) is in a tight lower range since being put in the earnings penalty box. Maybe we could get a cute cash flow trade if it ever attempts to get in the gap around $80ish.

 

Dell (NASDAQ:DELL) is still waiting for that LBO deal to get done. The highly reported number for a deal is $13.50. The meat of this trade feels like it is behind us.

 

Intel (NASDAQ:INTC) has a very tight range in front of its earnings gap. Let's see if that continues.

 

Facebook (NASDAQ:FB) got beat up yesterday after another bearish article in Barron's. The stock broke its 50-day after exhibiting some relative weakness Friday. The new pivot is $28.01, and FB is opening up with the market. Let's see what type of bounce it can get.

 

LinkedIn (NASDAQ:LNKD) earnings are on Thursday. I am believer in this company and stock, and I think either this earnings report or the next one could help the stock break out to the upside.

 

Metals are getting very tight in their wedges, and are opening up a bit today. For the Gold ETF (NYSE:GLD) it would be nice to see if this gap up can hold. If the ETF closes above $163ish, I think it could ignite some more momentum. Silver's ETF (NYSE:SLV) is also tight. A close above $31ish could make this trade more compelling.

 

Banks still act well, and could be the saving grace for this market. I will watch this sector closely as a leading indicator. As long as it holds up, it will help me have confidence in this market, but if it starts to break down it could lead me to be even more cautious.

 

In addition to the Main Virtual Trading Floor(R), T3Live offers four Mentoring Rooms based your desired time frame for trading. Take a 5-day free trial to any of our mentoring rooms and see which one is right for you.

 

For an example of the type of set-up you are likely to see in the Momentum Trader Mentoring Room, check out Steve Levay's breakdown of his five-minute opening high-low trade set-ups in 3-D Systems (NYSE:DDD) and Herbalife (NYSE:HLF).

 

Rob Smith anchors the ITB Candlestick Breakout Mentoring Room, and produces a detailed gameplanning video every night and weekend. Check out his weekend newsletter and extended gameplanning video to get a taste for his unique, calculated and powerful trading system.

 

 

 

*DISCLOSURES: Scott Redler is long GE, BAC, DBC, TBT, GLD, SLV, FXY, LNKD call spread, SLV calls. Short SPY.

 

Last Updated ( Tuesday, 05 February 2013 14:41 )
Banner
Banner
© 2012 T3 Live, LLC
  1. T3 LIVE, LLC is NOT a Broker Dealer. T3 LIVE, LLC engages in trader education and training. T3 LIVE, LLC offers a number of products and services, both electronically (over the internet through T3LIVE.com) and in person. Through T3 TV, an online video network that is available through T3LIVE.com, T3 LIVE, LLC provides LIVE pre/post market and stock analysis. Through T3LIVE.com, T3 LIVE, LLC offers the "Virtual Trading Floor", a community through which independent traders (subscribers), as well as select T3 Trading Group, LLC Traders, observe a virtual trading floor environment (as described below) for educational purposes. T3 LIVE, LLC also offers web-based, interactive training courses on demand.
  2. Subscribers are able to see if traders are long or short and what symbols as part of best practices in regards to disclosure. Subscribers do not see trader' screens, trades or size of positions. T3 requires traders to disclose whether they are long or short and which stocks they are trading to ensure that the community is fully informed and that traders substantiate their opinions. This approach is modeled after the analyst disclosures that accompany commentary on particular stocks on CNBC or other financial news media (as per FINRA Rules 2210 and 2711).
  3. The seminars given by T3 LIVE, LLC are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
  4. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE, LLC 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.
  5. The videos and blogs shown on T3 LIVE, LLC are for informational purposes only. The investment ideas and expressions of opinion may contain forward looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell securities. T3 LIVE, LLC statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio.
  6. T3 LIVE, LLC and T3 Trading Group, LLC are separate, but affiliated companies.
  7. T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX www.CBOE.com). All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC. For more information on T3 Trading Group, LLC please visit www.T3Trading.com.
  8. Global Trading Plus, LP (“GTP”) is the exclusive provider of T3 LIVE, LLC products in Europe, all the former Soviet Republics (dating back to 1991), and Israel. GTP is a separate company and has no common ownership with T3 LIVE, LLC, T3 Trading Group, LLC.