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Stockhaven’s Market Take 1/24/13

The indexes traded very mixed today. The Dow rallied modestly, the NASDAQ had its worst day of the year, the S&P500 finished completely flat, and Dow Jones Transportation index had its second best day of the year. In my opinion this is more evidence of a tired market. Perhaps the best evidence of this markets exhaustion was the S&P500′s attempt at crossing 1,500, which was brief and bumped its head at 1,502, before going red and then finishing near break even.

  • Play strength until it turns to weakness — Even though the NASDAQ got bruised today thanks to AAPL, stocks like AMZN, GOOG, CRM, FB & NFLX showed relative strength and remain in constructive uptrends
  • This is still a good sell zone in my opinion, but… — I suspect a lot of short term traders shorted SPY on the failure to 1,500 cross failure, so a break above 1,502 could result in a squeeze up towards 1,520
  • The bank trade is stretched — I don’t care what anyone says, with the exception of GS the big five (GS, WFC, C, BAC, & JPM), haven’t rallied since January 9th

AAPL suffered its biggest one day loss in god knows how long (it got too hard to read my charts going back after 5 years) Thursday, ushering the NASDAQ lower. AAPL’s decline seemed supportive of other major tech stock, as speculative money that was in AAPL likely licked its wounds and looked to uptrending stocks like CRM, GOOG, CRM, FB, & NFLX to recover. All five of them saw positive moves on the day, which is supportive of a point I raised just over a week ago:

“You see, institutional money doesn’t just invest in stocks, they invest in sectors. So if you have a tech fund for example, you could expect that fund to hold a basket of technology stocks, like IBM, MSFT, GOOG, AAPL, etc. Evidence of new money coming into technology is displayed when you see all major tech names rising together.

The fact we saw strength in AAPL on the same day we saw weakness in other majors tells me that new money isn’t coming in but rather already existing money (as in money that is already invested in tech) is just shifting around. This creates more of a carousel of uptrends vs one steady dominating uptrend for the sector as a whole. This argument is supported by the fact that QQQ is the only ETF index of the majors (SPY, DIA, IWM, & MDY being the others) to have not traded above its January 3rd highs.”
-Stockhaven’s Market Take 1/16/13 

This has proved to continue to be troubling for the tech sector as QQQ finished at its lowest closing level in 5 sessions and is actually in negative territory vs its first closing price of the year. The previously mentioned stocks though continue to move to the beat of their own drum and buying on dips has worked so far this year. Frankly, I expect that trend to continue until to work, until we see some lower lows being put in.

Since I expect QQQ to remain unable to get out of its own way, I still say this is a good sell zone in the broader S&P500. Today’s candle gives a perfect risk/reward set up in the SPY. A close south of today’s low of $149 and I’ll target a move towards $148, whereas a close above today’s high of $150.14 and I’ll expect a move towards $151.50-$152. Really today’s candle looks bearish to me as it looks similar to candles seen on 9/14/12 & 10/18/12. Both of those candles marked short term tops in the SPY after the following days candle closed beneath what was the prior days low.

XLF hit a fresh 5 year high today which I found ironic because none of the 5 major banks closed at even a year-to-date high. As a matter of fact, if you look at the major banks since January 9th (just before they all started reported earnings), they’re all flat. The only exception is GS, which is up an impressive 7.4% since that date. Yet even GS closed red today after tagging a new year-to-date high. Given that the major banks have been relatively flat to lower since January 9th, I see no reason to be involved in the long side of the bank trade at current levels. I’d either way for a breakout candle out of the consolidation range, or start positioning for a small pullback.

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