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


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.

Google (NASDAQ:GOOG) released earnings midday, and it actually gave opportunity for those at their desks to think quick and sell some longs, and perhaps catch a nice short. Then on Friday, it continued lower after trying to open up. The stock is going to need a lot of time to repair the damage. Friday's low was $672, which is now the level to trade against, but I see no reason why it can't see a move down to $650ish over a bit more time.

IBM (NYSE:IBM) missed earnings and has a huge hole in its chart. It couldn't hold its 100- and 200-day MAs and gave some clues of the coming weakness. This stock will need a ton of time to repair.

LinkedIn's (NASDAQ:LNKD) high levels stops were prudent as $116 was that spot to sell if you trade intermediate trends.

Amazon (NASDAQ:AMZN) is working lower like the other high beta names. Its 100-day MA is $236.

Microsoft (NASDAQ:MSFT) is below all moving averages. If the new Windows doesn't get a warm reception this week, it can see lower prices. $28-$28.50 is big support.

Facebook (NASDAQ:FB) stock has been very weak and reports early this week. I will look at it after the report.

Banks have been on the stronger side, make sure they continue to hold the 21-day moving average for upper support.

Citigroup (NYSE:C) helped to lead the way and then gave a traders a nice calculated short entry Thursday. Decent support lies at $36-$36.25.

Goldman Sachs (NYSE:GS) has been strong. If you want to have a high level stop, use $123.

JPMorgan (NYSE:JPM) has been a bit choppy but still remains a buy on dips. $41.55 is decent support to keep an eye on.

Bank of America (NYSE:BAC) is trying to hold above $9.20-9.40. If the market doesn't fall apart, this could be worth a trade through $9.60-9.80.

Homebuilders are also a bright spot.

The Homebuilders ETF (NYSEARCA:XHB) should be watched to make sure that commitment remains. $25.70 is an important area to hold. Lennar (NYSE:LEN), Toll Brothers (NYSE:TOL), KB Home (NYSE:KBH), and Ryland (NYSE:RYL) are all stronger stocks.

Metals have been coming in after failing at some major resistance levels. This is why you ride the 8- and 21-day and if they give way, you sell.

Gold (NYSEARCA:GLD) held its 50-day. Use that as short term support, which is now around $166.23.

Silver (NYSEARCA:SLV) closed below its 50-day. The new point of reference short term is $30.92, but $30.03 is the 100-day.

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