Volatility has officially returned. The last two trading days have been a roller coaster and we’re seeing very choppy action across a variety of indexes and sectors. I’m not going to be a top caller here, but I will offer up this much as far as I’m what I’m watching for: 1,490 or 1,505? Whichever one of those levels we trade below/above first I am trusting that move for another 15-20 points. My targets based on this would be 1,470-1,475 or 1,520-1,525. In between 1,490-1,505 and you’ll simply have a tight sideways channel at play for 3-5 days.
- Tech remains the problem child — QQQ followed up its best close of 2013 with its worst close of 2013
- Dow Transports shows relative strength — DJT didn’t join the other major indexes in the 1% club (sell off that is) as it finished down 0.6%
- GLD bucks trend, but remains trend-less – GLD closed green today after initially opening lower, but is flat on the year overall
My focus of the new year remains on technology, which had to have frustrated bulls and bears alike today. Why do I say both? Well, after closing at its highest level of 2013 and appearing as if it had broken out of its channel, a number of bulls likely went long while many bears probably threw in the towel on their shorts. This is really a danger sign for this market here given that QQQ has traded its highest back-to-back volume days of the year the last 2 days.
The implications of such high volume (relatively speaking) and whipsaw price action leaves traders confused and quickly looking for clarity. In the stock market, clarity comes in the form of one thing and one thing only: price. If QQQ goes below its low for the year ($66.17), I will be expecting it to fill its gap on down to $65.13. However, if QQQ can remain above that $66.17 level, I’ll expect a bounce back above $67 because that would fall in line with the dominating theme of 2013 so far, that being QQQ is simply in a channel.Regardless of what QQQ does though I believe you can still find good trades on both sides within the ETF.
AAPL looks poised for further downside today as it experienced its first 4 day losing streak since October 2012, and only its second since May 2012. This opens the door for the possibility of AAPL being able to do something else it hasn’t done in a long time, such as go down for a 5th day in a row (hasn’t done that since July). AMZN is a stock that took 2 days to go from $260 to $280′s last week and has since taken 4 days to get back to $260. Being so close to last weeks low of $258.35, I believe AMZN offers a good risk/reward on the long side where one can expect a bounce towards $270 while using $258.35 as a stop loss.
The Dow Jones Transports has been one of the leaders in this market and in true leadership form it an all time high on Monday of last week preceding the markets move to year-to-date highs on Friday. Following Monday, DJT slid to a low of 5,757 on Friday before bouncing back to 5,857 and then rendering 36 points today down to 5,820. If DJT can hold that 5,757 low, it could be another leading sign that it bottomed before the overall market. Holding that low would also be supportive of the overall markets not going much lower from here.
About once a week I feel like I look at GLD and see it stuck at the same price it was at when I looked at it the week prior. GLD closed 2012 at $162, pretty much where it closed today also. So while GLD was able to buck the trend and outperform the markets today, it has actually underperformed so far on the year.
There have been 4 instances this year when SPY closed red and GLD closed green (1/8, 1/14, 1/30, today – 2/4). As a result, I’m not going to get too excited that GLD was green on a red market day, because it has happened before this year without any pronounced performance from GLD shortly thereafter. Instead the story on GLD remains the same in my eyes, short if it falls below $160, go long if it gets above $164. In between those 2 price levels and GLD will continue to be a trendless, frustrating, and useless trade.
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