World markets saw more heavy selling overnight and the dollar continues to tumble against the Yen as concerns grow that central banks are losing control of their interest rates. China continued its slide, dropping 2.83%, while Japan's Nikkei finished down 6.35% and is back down 20% off its highs. Despite the extreme turmoil in Asian markets, S&P futures are down only 4-6 handles so far.
Early yesterday morning traders were sort of scratching their heads about why futures were opening higher, but that gap up was met with heavy selling to push the indices down around 1%. Due to the recent erratic action, we have recently talked about the idea of taking a more short-term, tactical approach rather than trying to hold a "portfolio" of swing trading positions.
With today's gap down we are set to open right back down into the 50-day moving average. Can the market bounce off it again, or will this time be different? The stock market is often defined by randomness, but if you map out levels to make adjustments you can protect yourself and potentially generate alpha. Last Thursday we had a nice bounce set-up off the 50-day from very oversold conditions. Today we are opening right around it and I’m thinking we might not have the same result. If you are going to try to but the dip today, or even try to position for follow-through shorts, maintain tight risk controls.
On May 22, the market saw an outside bearish reversal (aka Red Dog Reversal) at an inflection point of S&P 1674. The candlestick was a bearish turn for the market, but some of the damage was even more significant in individual sectors. That reversal was the first clear signal to take off some risk or get net short. While we have staged some multi-day bounces since then, there really hasn't been a loud bullish reversal signal to wrest back composure from the bears.
The 50-day MA stands at 1610 and the recent low was 1598. About 24 hours ago we were 30 handles higher, so it makes it for a tricky open. If we can’t reclaim the 50-day or close back above 1622ish, I do think we could see the 100-day MA around 1570 in coming weeks.
In the Morning Call we will go over S&P levels more thoroughly and some potential opportunities in high beta tech, both long and short.
Apple (NASDAQ:AAPL) remained weak yesterday, shedding 1.24% and breaking below the most recent support floor of $432.77. Most traders that were trying to be long likely got stopped out around $444. The stock closed on dead lows yesterday, showing very little buying interest, and is down a few dollars again this morning. If it can’t reclaim the 50-day quickly, which stands around $434ish), the next big support level for AAPL sits at $419. Reuters is reporting that Apple could be considering bigger screens and a cheaper model for its iPhone line, so let's see if that helps the price action.
Even market leader Google (NASDAQ:GOOG) was unable to shrug off the selling in yesterday's session and closed below its 8- and 21-day moving averages. The next support level stands around $870ish, where GOOG broke out from last Friday. The $855 pivot could be the last line of defense for intermediate-term traders playing it to the long-side. I would look to buy this stock on any significant market correction.
Amazon (NASDAQ:AMZN) broke below the previous breakout level of $272 yesterday, going all the way back to $270.45. The fact that AMZN so quickly relinquished gain from the impressive two-day breakout is not a positive sign. The next level of support is $265-268 where the 100-day MA could come in play.
Netflix (NASDAQ:NFLX) triggered below the $213.80 breakdown level we listed yesterday and went as low as $206.87 to close just in front of its 50-day moving average. If it doesn't find any buyers at this key support level, we could see a down move to the next support level at $197 and perhaps the 100-day at $191.37 below that.
Tesla (NASDAQ:TSLA) showed impressive relative strength yesterday as the stock saw a gap and go in the morning. However, it met some sellers in the afternoon and gave back some intraday profits, but still closed the day up 3.45%. There is an uptrend that has been in place since May 15, so let's see if that continues to hold. The $91-94 level is pretty important intermediate support.
At this point, I will likely take a look at some micro strategies in both directions. I could test some dip buys vs. key levels in strong stocks, and I could test some follow-through short trades in weak stocks. The time for tight pattern breakouts and 52-week high trades is behind us for now. I will stay tactical until we see more clarity.
*DISCLOSURES: Scott Redler is long SPY puts