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Minyanville's T3 Morning Market Call: Market Looks to Recoup Friday Losses

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Banks have been on the stronger side while the tech sector has been very heavy.

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US stock futures point higher Monday morning as the market looks to recover from Friday's sharp sell-off. Although the ferocity of Friday's selling caught many by surprise, there were signs for weeks that all was not well in this market. Sometimes you need to trust your instincts as a trader, even when stocks are holding up reasonably well, and that's what I did on Thursday when I went home flat.

Most traders had an uneasy feeling on Thursday as many leading stocks were breaking down with important moving averages showing precious few signs of support. Tech, which has been leading us lower for weeks, was getting downside follow through. If the little "trading voice" in your head didn't have you lighten up Thursday (or get short), on Friday you had one more chance as the 1445 level on the S&P was the commitment "line in the sand" that should have held if this market was going to remain constructive.

A slew of weak earnings on Thursday night and Friday morning was the main catalyst for the sell-off, confirming fears about this earnings season being one of the weakest in several years. Earnings will continue to roll in this week, the most noteworthy reporter being Apple (NASDAQ:AAPL) on Thursday. We don't take equities into earnings in our trading accounts. We also have the last presidential debate tonight and the Fed two-day meeting.

With what looks like it will be a higher open this morning, it will be interesting if strength fades quickly or if markets try to bounce a bit over the next session or so. The longer we stay below 1440-1445, the higher the probability we take out the important support of 1422-1427. Under that, we have 1396-1398 and then a major spot at 1380.

Tech has been very heavy. The Nasdaq ETF (NASDAQ:QQQ) was the first sector ETF to break its 50-day back on October 9. Last week, the ETF re-tested and was rejected by the breakdown level before following through to the downside. On Friday, the QQQ met the measured move of a head and shoulders top pattern. Some are saying there is a more macro head and shoulders pattern that takes this important sector much lower..

Even the best stocks should be shorted at certain points. A few weeks back, I got stopped out of Apple when it broke its 21-day MA around $683. Since then, it has been under a ton of pressure. Traders have been taking both sides of this trade as it has bounced off key moving averages and then sliced through them. The last one was on Friday as the 100-day gave way around $626. The stock went as low as $609.62. Although this has been a great investment vehicle through the years, lately its been a better trade. The iPad mini gets unveiled Tuesday and then earnings are on Friday. The 200-day is $583ish. Keep trading this one, and we will talk more macro on Thursday around earnings.
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