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Minyanville's T3 Morning Market Call: Can Market Hold This Gap Up?


Tech stocks have been a mixed bag, and banks have been acting very well, setting lofty expectations for Friday's earnings that were not met.

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Futures are up 5-7 handles Monday morning as overseas markets bounced back from the worst week in four months. Most indices ended lower on four or five days last week, making it prudent to cover some shorts going into the weekend. Most traders would have liked a down open to buy, but not much seems to be happening the way the bulls or bears want it lately.

IBD changed its Big Picture to "Market Correction" last week. This is not a prediction, it's a condition! When the market goes into correction mode, you have to shift gears a little bit and trade on a shorter time-frame. When the market is in a "confirmed rally," stocks are breaking out and sector rotation is in gear, adding to positions after initial moves can actually work. Lately, that's not been the case as technical damage, or "faulty signals," have been more commonplace.

With the gap up this morning, market participants need to measure what it leads to. I do not think this market has chronic illness or pneumonia, rather more of a head cold. I don't think we get a 15-25% correction like most bears are predicting. I would be very surprised if we go much lower than 1380 (if we can even see that level).

The S&P danced around the 50-day, which has been a magnet since the Nasdaq ETF (NASDAQ:QQQ) broke its 50-day last Tuesday. Friday's low was 1425, which is now our point of reference. This 1422-1427 was big support, so some type of bounce makes sense. The question is: What type of bounce do we get?

If the bears want to stay in a bit of control or keep the market in a position for lower prices, they should not let the bulls reclaim 1438-1443. The line in the sand would be 1445-1448. I think this is the fourth time in a row the futures have an upside gap. Each of the other three didn't reward buyers during the trading day. Those fading gap ups had more success. I'm not so sure today will be as easy to "fade the open," so I would take it slow if you are coming in flat.

Tech has been a big time mixed bag. Most PC sector stocks have seen downward pressure for three to six months. Examples are Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL), and Microsoft (NASDAQ:MSFT).

High beta has been very mixed, but more to the downside.

Apple (NASDAQ:AAPL) broke its 21-day on September 25 and it's been a two-way trade since, with more money made on the downside. It is trying to hold its 100-day, and $623.50 is the new point of reference to trade against. Micro resistance is $635 then $645-647. Its invitation-only iPad mini event could be helping this morning, but the real event is earnings day on October 25.

Amazon (NASDAQ:AMZN) changed a bit on October 9 as it sliced its upper moving averages. It's in no man's land. I will re-visit this around earnings time.

LinkedIn (NASDAQ:LNKD) broke its upper channel on October 9 stopping out some intermediate longs. The 100-day is at $107. Let's re-visit around earnings time.
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