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Market Looks to Build on Small Red Dog Reversal (Morning Call)

Scott Redler
Feb 6, 2014, 9:30 AM

World markets are mixed this as Europe is putting in a strong session but Asia shows no real appetite for a sustained bounce yet. European indices are up the following: DAX 1.24%, FTSE 0.89%, CAC 1.25% AEX 1.24%.

The S&P staged a small Red Dog Reversal yesterday but was pretty hard to trust. The recent pivot low for SPY was $173.80 and yesterday morning as Demark tried to spread some fear it hit $173.71 before bouncing back later in the day to close somewhat decent.

Today S&P futures are up 4-6 handles so far. There is a micro resistance pivot around $175.80ish. If the markets can hold above that for the first 30-60 minutes, perhaps the market could try to re-test the broken intermediate-term trend line that stands around $176.80-$177.10.
 
Lots of other sectors (DIA, QQQ, XLF, IWM, XLI, RTH) also staged Red Dog Reversals through Monday's lows. Now we need to see if they build or get rejected by their intermediate trend lines.
 
In today’s Morning Call we will look at the banks.
 
Bank of America (BAC) held above January's pivot low of $16.06 and had a nice rally off of lows to close in green. The longer it holds above prior breakout level of $16, the higher the probability it could regain some momentum.

JP Morgan (JPM) held above the 200-day EMA on the recent pull back. A break and close back above the 8-day EMA at $55.44 could lead to a larger bounce.

Citigroup (C ) also held above Monday's pivot low on the sharp sell-off in the morning to close in green with small gains of 0.60%. We now have Monday's pivot low of $46.19 as key support level to trade against.

Morgan Stanley (MS) has been trying to hold the intermediate-term support of $28.70 from November. The longer it stays above this level, the higher probability it could attract some dip buyers at these lower levels.

High Beta Tech is all over the map.
 
Apple (AAPL) had nice upside follow-through to show relative strength yesterday. The stock is approaching its earnings gap. A move through $515 could help the stock enter the gap and bring in more buyers. Next resistance to watch is $527-529.

Amazon (AMZN) briefly broke below Monday's pivot low of $340.10 and snapped back to close well off of lows. A break above yesterday's high of $349.37 could lead to a further bounce. Next resistance to watch after that is $360.

Netflix (NFLX) continued to find support at its 8-day EMA, showing relative strength. Until it breaks below this key short-term moving average, there is no reason to lean toward the short side. Use yesterday's low of $398 as the new pivot to trade against.

Google (GOOG) has lost some momentum after Monday's potent sell-off. It needs to hold yesterday's low of $1128 to avoid additional selling pressure.

Social media is on the move after Twitter's (TWTR) disappointing earnings as some divergences are clearly developing.
 
TWTR came out last night and disappointed the street, especially with user growth numbers. The stock is down almost 22%. This is another example of why, if you want to play a stock into earnings, you use options as risk is premium paid (especially with a new IPO reporting earnings for the first time). Prior pivot highs for TWTR are around $50, which could be worth a look there long. If you are going to touch this I wouldn't be stubborn though and only trade a level versus a level. There will be a huge hole in this chart depending on how we close today, so it will need time.
 
Facebook (FB) is executing much better than TWTR at this juncture of its life-cycle, but is still getting pressured on the TWTR weakness. I'm not sure if they isolate TWTR or some pressure lingers on FB as well. Look to see if it can go positive. Use the earnings gap, which stands around $60.50, as your line in the sand.
 
LinkedIn (LNKD) has been consolidating for a few months and been out of play. Today’s earnings report will be interesting. The stock went from $90 to $250ish and has been building a new base. If you are looking to trade it after hours it needs to get and stay above $225ish for there to be a trade there. Support is $192ish.
 
Yelp! (YELP) had a strong report and is up almost 10%. It's good to see that you’re getting individual stock action as they are all created differently.
 
Some other notable moves and set-ups.

Tesla (TSLA) found good support at its 21-day EMA and staged a strong bounce yesterday. A break above yesterday's high of $180.59 could bring in more buyers.

Salesforce (CRM) has been showing some relative strength recently as the stock briefly broke out of its upper level range at $61.50 yesterday. This could be the go-to name if the market continues to hold up today.

Baker Hughes (BHI) also has a tight base above its 8-day EMA. Look for a potential breakout if it can get and stay above $57.15ish.

Green Mountain Coffee (GMCR) soared almost 45% after-hours last night after Coca-Cola (KO) announced it will purchase a 10% stake in GMCR. Needless to say investors will be pleased this morning, while the legion of GMCR short-sellers (which includes Greenlight Capital's David Einhorn) will be left licking their wounds. Let it trade for the first 30 minutes as it could be whippy.

eBay (EBAY) showed some relative strength yesterday. It needs to get above $54.15 for more continuation.

 
Akamai Technologies (AKAM) is also up 16% after a strong earnings report, so we are seeing a few really monster move after last night's earnings. Just like with the others, watch how it treats the gap today to determine what the set-up could be moving forward.
 

The major 3-D printing excess speculation phase seems to be unwinding after 3-D Systems' (DDD) big warning yesterday. DDD, which has been the sector leader, dropped more than 15% after considerably revising down earnings estimates for the quarter (and is down more than 2% pre-market today). The warning led to sympathy double digit losses in fellow 3-D printing stocks Stratasys (SSYS) and ExOne (XONE), among others.

Gold (GLD) is still pausing in front of a big downtrend that stands around $122-$122.50. See if a break above that can ignite additional gains.

The market environment over the last couple weeks hasn’t been easy. The S&P gave you clues at the 1830 to make adjustments and then again at 1770. Now we have 1738 as support to trade against. We could get a retest of 1770 as the jobs report is tomorrow. There is lots of talk about 10%-15%-40% corrections as the bears have become emboldened. I’m not sure what happens. I can’t confidently say yesterday was the low or that we will see the 200-day.

I don’t think this is 2008, though. We could see the 200-day if we break 1738 down to 1707, especially if we can’t reclaim 1770. We could even see 1670ish, which is the macro trend, and still be healthy. If the bears muster the “ultimate storm” I think 1576 is the lowest we could potentially see as that would be a re-test of the double top that we took out last year. Longer-term investors could stay the course, but if you are a short-term trader I think now is a time to be light on your feet. If you reduced risk when trends broke, you don’t have to know exactly where we will go.

 

*DISCLOSURES: Scott Redler is long EBAY, BHI, TWTR calls. 


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