A potent sell-off that took place in the precious metals overnight.
World markets and US stock futures are getting hit hard this morning, following through on yesterday's downside in US markets that was triggered by yesterday's Fed decision and testimony. The FOMC and Chairman Bernanke did not say anything surprising, but the committee's rosier-than-expected characterization of US economic conditions triggered fears about a quick exit from QE. The fact that the market is selling off hard on a more rapidly improving economy epitomizes the twisted environment unprecedented central bank has created.
China continues to get pressured as it makes lower lows and Japan gave back 2% after a recent 7% bounce off the lows. Yesterday US markets had a nasty engulfing bar after Bernanke’s testimony. While the S&P 500 (INDEXSP:.INX) tried to hold above the uptrend line that was created by the recent higher-low bounce off the 50-day moving average, the trend failed at S&P 1642-1648. I stopped myself out of all longs and went home with my only position being short gold (NYSEARCA:GLD).
S&P futures are down 13-14 handles and we could quickly see the 50-day MA this morning for the third time in the last few weeks. You don’t hear many technicians talk about “triple bottoms” because often they don’t hold. There is now a very important support zone under that area at 1598-1608. A break and close below the 50-day could lead to a move down to the 100-day around 1576.
The even bigger story this morning is the potent sell-off that took place in the precious metals overnight. My firm has been pounding the table on the GLD short thesis this week, and today GLD is breaking the $130.50 floor.
GLD and SLV are actually off their overnight lows, but are currently down 3.5% and 5.2%, respectively. QE has been the main price driver for the precious metals over the last several years, and now with the Fed moving to reduce the size of monthly purchases, it makes perfect sense that GLD is tanking.
Technically, everyone had multiple areas to make some adjustments. The intermediate term trend in GLD broke to the downside on February 11 around $161, then the macro trend broke around $149ish on April 12. Yesterday the metals closed on the dead lows right at our most recent action area of $130.50, which was a spot to make some tough choices again. Now the GLD is down five to six points.
If you are short a trading position in GLD overnight, now is not a bad time to cover a portion and ride some out. The $122-123.50 area is big support now. While I wouldn't be greedy with the short, we could see some trapped longs and over-levered gold funds come under pressure with such extreme volatility today, and there is no telling how low gold could go.
Another recent theme we have been focusing on is short bonds, such as ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT) or iShares Barclays 20+ Year Treasury.Bond ETF (NYSEARCA:TLT). Technically, the TLT has been forming a bearish head-and-shoulders pattern, and looks to be triggering through the neckline this morning. TLT is down around 1.5% this morning, while the bearish levered TBT is up 3.2%. I don't think these have as much potential to run away like GLD, but it is worth trimming some and trailing some to see where they go.
Today will be interesting, but I don’t feel so compelled to buy anything. Traders welcome corrections as along as they become flexible when market conditions dictate a more short-term tactical approach. Corrections allow us to identify relative strength. We will map out levels in the key sectors today to see if any group can lead us off the lows today. We will also go over some of the recent stronger names to see if they can lead a bounce.
The retail ETF (NYSEARCA:RTH) put in a big red bar yesterday as it closed the day down 1.50% to break below its 8-day moving average. The ETF had previously put in a double top at $53.44. The 50-day moving average stands at $51.66.
The financials ETF (NYSEARCA:XLF) again got rejected by the downtrend resistance that was established since the May 22 outside day. The ETF dropped 1.31% to close below its 8-day and 21-day moving averages. Next support to watch is the uptrend support that has been in place since the May 5 jobs number gap at around $19.45. A break below this could resolve the upper wedge to the downside.
Homebuilders (NYSEARCA:XHB) are worth a look to see if they hold recent lows. The 50-day moving average stands at $30.60, then the major support area is down at $29.80ish.
The consumer staples ETF (NYSEARCA:XLP) is usually low-beta but shows relative strength yesterday, closing down 1.97%. The ETF broke the steady uptrend that had been in place since the June 6 bullish reversal. The key support area to watch now will be the $40 area. Utilities (NYSEARCA:XLU), another value dividend sector, also showed relative weakness yesterday.
The transports ETF (NYSEARCA:IYT) retested its prior breakout level of $112 after seeing 1.22% of losses yesterday. Yesterday’s weakness gave more clarity to the head-and-shoulders pattern that has been developing since early March, with the right shoulder forming since June 10. A break below prior breakout level of $112 could bring in more sellers.
The Nasdaq ETF (NASDAQ:QQQ) tech has been acting better; see if it can hold $71.0ish area.
Below are some trade ideas in tech to watch to see if they hold in for trades.
Google (NASDAQ:GOOG) extended higher in the morning and even through the initial Fed decision, but succumbed a bit to the broader market weakness that ensued during Chairman Bernanke's press conference. GOOG still finished the day (marginally) in the green, and could be one of the first stocks to turn to when the market finds its footing. See if the $885-890 area is buyable.
LinkedIn (NYSE:LNKD) showed relative strength in the morning but the rally slowed down when the stock approached the intermediate resistance of $184ish. LNKD managed to close in positive territory with small gains of 0.86%. See if it could hold the 50-day at $178ish.
Netflix (NASDAQ:NFLX) sometimes ignores broad market movements, and that was largely the case yesterday. NFLX spiked hard right off the opening bell above the recent range, which we had highlighted as an actionable area in last night's newsletter. NFLX finished up 1.52%, but did finish off its highs of the day. Look to see if $228ish can hold.
Amazon (NASDAQ:AMZN) didn’t have enough power to break out above $284.50ish then sold off with the market late in the day. See if the $272-$274 area holds.
Tesla (NASDAQ:TSLA) opened lower yesterday after CEO Elon Musk sent out a tweet that the company would be recalling 800 of its Model S cars. Upon further review, the recall didn't seem like a big deal, and the stock managed to close the bearish gap right off the open and extend higher to $ 106.67 where it has some resistance from prior pivot high. TSLA held up well during the sharp sell-off in the market yesterday. If the market could see a bounce, this one could be among the first to show relative strength.
Facebook (NASDAQ:FB) is actually showing some signs of life as it heads into another invitation event. See if that continues. Holding above $24 would be constructive.
In volatile days like this, there is opportunity if you embrace it. Corrective phases are healthy and welcomed. We will watch the 50-day moving average again to see if this correction gets deeper this time. In perspective we still haven’t had a 5%+ correction in all of 2013. I think even the bulls would like to see more downside to give us better spots to buy the dip, and I still think the highs of the year are not in. However, I will not be married to that thesis and will remain short-term tactical until I see more clarity.