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Minyanville's T3 Morning Market Call: Bull Trap Turns Into Bear Trap on Gap Up


There continues to be a lot of very stock-specific action with not much continuity in the price action at this stage.

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S&P (INDEXSP:.INX) futures are seven to eight handles higher this morning following the biggest sell-off of the year yesterday. Friday the index closed on highs, and then yesterday it closed below its 8-day moving average for the first time in 2013, the type of reversal traders often refer to as a "bull trap." A close below the 8-day MA can signal a short-term composure change and lead to a pullback, but the misdirection continues this morning with the large gap up. After a strong January traders were perhaps looking for a bit of a pause in historically weaker February, but based on today's pre-market action the melt-up could continue.

The gap down in the S&P 500 ETF (NYSEARCA:SPY) from yesterday starts at around $150.60ish, then next resistance is the pivot high zone between $151.26-$151.42. Support, based on this open, stands at $150.11 then $149.43.

I certainly did not start loading up long into yesterday's close, so today will be a bit tricky for me. I will likely sit on my hands in the early going and wait for the market to build a more calculated pattern over the next few days. This market is proving that there is a firm bid underneath the surface, but the day you start getting sloppy and giving things too much room could be the day we end up getting a more significant pullback. In my opinion, though, I believe we could test highs of S&P 1552-1576 and then take them out over time. We could get more of this choppy type action on the way there.

There continues to be a lot of very stock-specific action with not much continuity in the price action at this stage. Tech remains very mixed.

Netflix (NASDAQ:NFLX) has been acting best since earnings. The stock was super strong yesterday, and the next pivot is to clear $175-177ish.

Amazon (NASDAQ:AMZN) rejected the $284 level post-earnings and has been slipping ever since. Now the stock is near big support at $258ish.

Apple (NASDAQ:AAPL) remains under pressure and there still is no commitment to any of the small rallies we have seen since earnings. I will not look to buy it aggressively at all until we see a more compelling reversal signal. The levels to watch are yesterday's low of $442 and then the earnings pivot low of $435. Resistance now is $448.25-452.

Google (NASDAQ:GOOG) was downgraded yesterday and again today after making new all-time highs on Friday. Let's see if it can hold yesterday's low of $758.20ish.

Baidu (NASDAQ:BIDU) came in light on earnings and is down a few dollars this morning. Let's see how it handles the $100-$102 area.

VMware (NYSE:VMW) is in a tight lower range since being put in the earnings penalty box. Maybe we could get a cute cash flow trade if it ever attempts to get in the gap around $80ish.

Dell (NASDAQ:DELL) is still waiting for that LBO deal to get done. The highly reported number for a deal is $13.50. The meat of this trade feels like it is behind us.

Intel (NASDAQ:INTC) has a very tight range in front of its earnings gap. Let's see if that continues.

Facebook (NASDAQ:FB) got beat up yesterday after another bearish article in Barron's. The stock broke its 50-day after exhibiting some relative weakness Friday. The new pivot is $28.01, and FB is opening up with the market. Let's see what type of bounce it can get.

LinkedIn (NYSE:LNKD) earnings are on Thursday. I am believer in this company and stock, and I think either this earnings report or the next one could help the stock break out to the upside.

Metals are getting very tight in their wedges, and are opening up a bit today. For the Gold ETF (NYSEARCA:GLD) it would be nice to see if this gap up can hold. If the ETF closes above $163ish, I think it could ignite some more momentum. Silver's ETF (NYSEARCA:SLV) is also tight. A close above $31ish could make this trade more compelling.

Banks still act well, and could be the saving grace for this market. I will watch this sector closely as a leading indicator. As long as it holds up, it will help me have confidence in this market, but if it starts to break down it could lead me to be even more cautious.

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Scott Redler is long GE, BAC, DBC, TBT, GLD, SLV, FXY, LNKD call spread, SLV calls. Short SPY.
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