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Minyanville's T3 Morning Market Call: Market Making Traders Dizzy


At this time, stocks like Qualcomm, eBay, and Netflix have reported strong earnings and held higher.

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Futures have turned slightly lower this morning following yesterday's reversal back to near highs in the S&P (INDEXSP:.INX). It has been a confusing three-day sequence for traders after the index closed on its highs Friday, and it looks like back-and-forth action could continue this morning. Stocks gapped down Monday and continued lower during the session, with the S&P closing below its 8-day moving average for the first time this year. Yesterday, after traders had started to prepare for a potential pullback, the market opened sharply higher and rallied during the session to erase most of Monday's gains.

The bullish trend remains intact, but it remains hard to aggressively pile into new "core" trades at these levels. Yes, there have been great opportunities for add-on trades in strong stocks, but you need to be selective at this stage. This type of first quarter melt-up is not without precedent, as last year we had a similar scenario over that time-frame. With the S&P nearing all-time highs, though, it might be a little tougher to continue to ride the 8-day moving average this time around.

Overseas the Nikkei (INDEXNIKKEI:NI225) continues to rally as the yen gets devalued. Chinese markets are up eight sessions in a row and 23%+ since the December lows. European indices are starting to diverge from one another as they aren't all created equal. The US markets are not going rogue by rallying; the turmoil and skittishness that seemed to define world markets at times over the past few years seem to be fading. The European debt crisis has subsided despite some recent corruption allegations in Spain, and China's landing has been far from hard.

As far as key technical levels to watch on the S&P 500 ETF (NYSEARCA:SPY), micro support stands at $150.29ish. The bigger support level stands at $149.40-149.60. New pivot resistance stands at $151.48 and then $152.20ish.

As we near the end of earnings season, we like to evaluate how stocks have been acting following their reports. We like to focus on leading stocks that report strong earnings and hold higher. Stocks that fit that description for potential follow-on trades include Netflix (NASDAQ:NFLX), which has formed a tight upper level channel and still has a high short float, Google (NASDAQ:GOOG), which is hanging out near all-time highs, Qualcomm (NASDAQ:QCOM), and eBay (NASDAQ:EBAY).

While we like to focus on leading stocks, there are also select opportunities to trade stocks that reported lackluster earnings and start to show signs of bottoming. The most high profile name in that group is Apple (NASDAQ:AAPL), which yesterday showed its most commitment to a rally since earnings. The stock trended higher most of the day to engulf the previous two-days of selling, and it will be key to watch how well it holds up in what could be a soft open this morning.

VMware (NYSE:VMW) has put in a tight flag since dropping more than 20% after its earnings. You can take a neutral approach to the this stock and wait to see which way it breaks out of this lower level flag. The stock has been resilient over the last couple years after pulling into near this support area.

The banks continue to lead the market higher, and I believe will hold clues if we ever do get a steeper correction. Goldman Sachs (NYSE:GS) has re-emerged as the group leader, but yesterday Bank of America (NYSE:BAC) showed relative strength.

Overall, I would take a step back until we get more clarity in this market. Cash is a position, and a prudent one when the short-term gyrations of the market are a bit erratic.

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Scott Redler is long C, AAPL, BAC, MGM, ZNGA, FB, SLV, GLD, DBC, TBT, GE, SLV calls. Long LNKD call spread. Short SPY.
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