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The T3 Morning Market Call: Market Set for June Swoon?


Europe played a little downside catch-up last night, and Japan is down another 3.7%.

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This morning US futures are taking back some of Friday's late-day losses despite weakness in world markets overnight. The question is, can we re-short this bounce? I would map out Resistance No. 1 and No. 2 to potentially add to shorts or reduce some risk if you feel a bit uncomfortable with remaining long positions.

Europe played a little downside catch-up last night and Japan is down another 3.7%, making it almost a 20% correction off highs for the Nikkei (INDEXNIKKEI:NI225). It will be interesting to see how Japan reacts to recent weakness. If you feel Japanese markets are due to outperform in the long-term, perhaps this sell-off provides a dip-buying opportunity.

Last week we spoke often about the upper-level wedge pattern that was developing in the market, and on Friday afternoon we got a break below that pattern with a potent engulfing bar. On Wednesday May 22, we had an outside day, or "Red Dog Reversal," which is generally a spot to take some risk off, sell loose longs, and perhaps jump into a few shorts. After that, for about six sessions the pattern created a series of lower highs. Then late Friday, on a day many expected to be quiet, the SPY (NYSEARCA:SPY) sliced through $164-164.50 and put in a low in at $163.13.

S&P (INDEXSP:.INX) futures are up about 6-7 handles so far this morning. so a resistance spot to short would be about 1640-1643 – a retest of that broken upper support. Resistance No. 2, a spot the bears would need to defend if we get there, is 1648-1652. Any close above this might have some saying – was that the correction? My gut still tells me that in the coming we weeks we could test the 50-day, which now stands at 1600ish.

After a potentially complexion-changing day on Friday, it's important to check the temperature of all sectors as the wedge seems to be breaking to the downside. I would map out some potential containment spots as futures are up this morning.

SPY broke below its 21-day MA for the first time since the accelerated rally started to be back in April. SPY breached the key support of $164ish, showing some signs of a growing risk-off mentality. The next big support area is the 50-day at $160. Look to see if $164-164.50ish contains a bounce. The line in the sand is $165.50ish.

The Banks (NYSEARCA:XLF) were leading the market up for the past two weeks, but on Friday the ETF below its 8-day MA at $20. The next big support area is the 21-day at $19.56 then the 50-day at $18.82. Look to see if it can recapture or gets rejected by $20-20.10.

Homebuilders (NYSEARCA:XHB) got a nice push early last week when the housing data came out better than expected, but then the ETF couldn't find momentum above $32.45 and started to retrace lower. Last Friday the XHB dropped below the 21-day to close at $30.90. The next important support is coming in at the 50-day around $30.35. Look to see if sellers can defend the $31.44ish area.

The Transports (NYSEARCA:IYT) is hanging by a thread at its prior breakout level of $112ish. IYT has started to show some signs of fatigue since May 22. The next major support is at the 50-day around $110.80. A break below this could bring in more sellers. Look to see if the sellers defend $113.35-113.75.

The Industrials (NYSEARCA:XLI) showed some relative strength as the ETF is holding above the 21-day. Key support is standing at $43.86. Below this we have the 50-day at around $42.10 which lines up with the prior breakout level. Look to see if sellers defend the $43.90-44.20 area.

Utilities (NYSEARCA:XLU) led the market up during the first quarter, but also went down ahead of the market during the past few weeks as real interest rates rise. XLU already dropped below its 50-day as it's back at the prior breakout level from October 2012 at $37.50. A break below this could lead this ETF down to its 200-day at around $37.10. XLU got rejected around the $38.50 area.

Continue to keep a close eye on the bond ETFs ((NYSEARCA:TLT) and (NYSEARCA:TBT)), for clues, as well as gold (NYSEARCA:GLD), which continues to feel heavy.

The 20+ Year Bond ETF (TLT) looks to have a bearish Head and Shoulders pattern building since 2011. A break and close below $111-113 could lead to a potential major breakdown move that could take us to $98ish area. The Inverse Bond ETF (TBT) continued to trade above its 8-day MA despite some volatility during the last week. The $69.70 area is major intermediate resistance from March. A break and close above this could lead to a nice intermediate breakout and take it back to retest the prior level of $71.50 from January 2012.

GLD held its "double bottom" area of $130.50ish but is still struggling to find momentum above $138. It it continues to have pressure from the April 15's gap and couldn't get above $139.50 intermediate resistance area, we could see GLD retest the major suppprt of 130.50 one more time.

Silver (NYSE:SLV) is still trading below all key moving averages as it continues to get selling pressure from the 8- and 21-day MA. SLV is trying to build a base above the key support of $20.81 from May 20's lows. The ETF still feel heavy at this point and could be an avoid until it shows some strength above $22-23.

Tech remains mixed with opportunities both ways.

Google (NASDAQ:GOOG) is consolidating and looks like it could see its 50-day. It's creating a lower wedge type area, under $864 it could see more downside. If it gets above $878 perhaps it could starts a new uptrend-stay tuned.

Netflix (NASDAQ:NFLX) had a nice two-day move and now it needs to hold above $225ish to build another better pattern, but probably needs time.

LinkedIn (NYSE:LNKD) is still having trouble. The $164ish spot is one to potentially trade against, and below that there is $158ish.

Apple (NASDAQ:AAPL) was strong Friday then gave in to the market weakness and hit $457. A little work above $450 would be healthy for AAPL, and if it gets under $440 some will question the validity of the inverse Head and shoulders constructive pattern.

Amazon (NASDAQ:AMZN) has a nice macro pattern that is still building. The $270-272 zone is a big area-a close above that could take it back to all-time highs.

Tesla (NASDAQ:TSLA) broke its upper range on Friday and some caught a cute short around $102 (or a continuation short from the outside day from last Wednesday around $110.75). The $95-97 area could be a spot for adjustments. The stock hasn't lost its 8-day moving average since its earnings gap.

Last Wednesday I came out and said that "gun to head, I do think SPY sees $161ish before we make new highs on the year." I bought some puts on Thursday and then midday Friday. On the close I sold the $162's puts to create a spread. I will see if this bounce is shortable in the next session or so as there could be new monthly flows and we also have 20 for 20 Tuesdays.

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Scott J. Redler is long AAPL, BAC, AAPL call spread, SPY put spread.
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