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Minyanville's T3 Morning Market Call: Avoid Chasing Market After Quick Snap-Back


The price action in stocks over the last two weeks could be proof that the Fed still largely drives this market.

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Futures are up two to three handles as overseas markets continued the bounce back. Japan is up another 2.7% with China up 2.3%. Most European indices are also holding recent gains.

The day-and-a-half snap-back from Tuesday's lows was quicker and larger than most would have expected. From "rally under pressure" to "market correction," and then a move back within 10 handles of 2013 highs can spin around the most seasoned traders. What you can't do is be stubborn and fight the action with opinions. That's how you get put out of business.

If you blinked, you missed the sell-off (and the comeback) in the market. The S&P (INDEXSP:.INX) is once again just a stone's throw away from pivot highs of 1530 as Monday's weakness has already been erased in two sessions. S&P short-term resistance is 1525, and then 2013 highs of 1530. Support stands at 1508-1511. The longer we stay above this level with commitment, it's only a matter of time, in my opinion, before we take out 2013 highs and tag/take out the macro double top.

At this point for intermediate-term active guys, I would say it's hard to do a lot right here. Most bought well into Tuesday's reversal around SPY $149 and probably sold too early yesterday and then flipped too early, enduring very whippy action.

Macro participants probably yawned at this minor corrective phase as most longer term trends didn't come into play. Now the Dow Jones Industrial Average (INDEXDJX:.DJI) is also about 1% from all-time highs.

There are lots of big snap-backs in a various sectors. The rotation remains constant. Some stocks are at historic highs. The major indices closed Wednesday in the green, all gaining over 1%.

The price action in stocks over the last two weeks could be proof that the Fed still largely drives this market. FOMC minutes last week hinted that some hawkish Fed governors want to take away the punch bowl in 2013, which weighed on the market. But all it took to reassure jittery investors this week was Chairman Ben Bernanke's congressional testimony. The Chairman reiterated his stance on QE that its risks are manageable and benefits significant, and gave no indication that the Fed is realistically thinking about ending or curtailing its controversial asset-buying program.

All sectors participated in today's rally, but the industrials continued to show leadership, while the financials and basic materials were not far behind. Today's strength is obviously a positive for bulls, but I would caution against chasing the indices at these price levels. When ranges increase and the market becomes choppy near upper levels, it's cause for caution, no matter how resilient the market is. My best advice at this stage is to be very stock selective and focus less on trading indices and highly correlated stocks.

Google (NASDAQ:GOOG) needed some rest after last Wednesday's push through failure at new highs. It made sense to lighten up on swing long positions but after a few days of choppy action, GOOG is back on the radar as a swing long candidate. The pattern looks constructive for higher prices.

LinkedIn (NYSE:LNKD) has shown tremendous relative strength lately and after holding above $154 on the recent pullback from highs, the stock was back on the move Wednesday as it broke out to new all-time highs and closed the day up over 6%.

Netflix (NASDAQ:NFLX) is holding up well as it holds above the prior breakout level of $175. Look for potential resolution to this new range above $186-186.50.

Visa (NYSE:V) is on the radar as a swing long candidate. The stock continues to trade on the top third of its yearly trading range and is holding up well as it bases above $154. Look for this descending triangle pattern to potentially break to the upside above $160.

Yahoo (NASDAQ:YHOO) is holding up well at highs as it flags above the 21-day moving average. Look for a potential long above $21.40-21.50.

Apple (NASDAQ:AAPL) closed the day down 0.98% as it continues to show relative weakness. All eyes were on this stock Wednesday as the annual investor meeting was held at noon but the meeting was a non-event and AAPL failed to trade above the micro downtrend line at $453. This stock remains weak and below $435 could be pressured further. Do not trade AAPL with a bias.

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Scott Redler is long GOOG, BAC, NFLX, BBRY. Short SPY.
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